Deutsche Bank Faces €500M Lawsuit for FX Scandal

Deutsche Bank is facing a massive €500 million lawsuit slapped by Spain’s seventh-largest hotel chain, Palladium Hotel Group, for the alleged misselling of complex and risky foreign Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term (Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term) derivatives.

As reported by the Financial Times on Wednesday, the claim for the damages was filed in the High Court of London last month and is among many allegations the bank is facing for selling exotic financial products to small and mid-sized companies in Spain.

Loss Making Transactions

The hotel operator made 259 derivatives transactions facilitated by Deutsche Bank by 2019. The outstanding notional amount of the contracts at the peak of the transaction in 2017 touched €5.6 billion, the lawsuit detailed.

Deutsche Bank touted the forex derivatives contracts to be a safe hedge for forex fluctuations and changes in interest rates. However, the hotel chain ended up mounting losses and fees and had to cover them with ‘substantial loans’.

The German bank even restructured the loss-making derivatives investments for the hotel, charging more fees. But, that only resulted in greater losses.

The deals between the bank and the hotel were fixed by the broker of Palladium’s Founder. Now, the hotel group is accusing the bank to have exploited personal relationships for financial gain.

The lawyers of Palladium said that the hotel group did not have enough expertise to know the risks of such complex financial derivatives.

According to the report, this could be a part of a scandal on the part of the German lender as it sold risky derivatives to 50 to 100 companies. Upon many allegations, the bank even entered into out-of-court settlements and even sacked two of its staff. Moreover, it initiated an internal probe into the allegations.

However, Deutsche said that the issue with Palladium is a standalone occurrence and is adamant on legitimacy on its part. Furthermore, the bank added that it will defend itself ‘vigorously,' discarding any chances of settlement.