Back in 2008, when financial markets were chaotic and unpredictable, at least one large bank managed to turn a hefty profit with finely-tuned bets on an interest rate that was being manipulated almost constantly by large banks.
The Wall Street Journal reports that Deutsche Bank turned a neat profit of $654 million betting on small changes in the benchmark lending rate known as Libor in 2008, the year when global markets were at their absolute craziest. The bets were an "extremely large risk" even for Deutsche Bank, one of the biggest banks in Europe, one analyst tells the WSJ.
That year was also a time when many banks were manipulating Libor, which is short for the London Interbank Offered Rate, a key short-term lending rate that sets borrowing costs throughout the global economy. So far, Barclays and UBS have paid fines totaling nearly $2 billion and admitted their traders monkeyed around with the rates (often to help traders make some money on trades tied to Libor).
Deutsche Bank itself is one of a handful of large banks that help set Libor by reporting their borrowing costs to a central authority each day, a system that has long been known to be susceptible to fraud -- but one that is still in place today.
But the WSJ story does not accuse Deutsche Bank of manipulating Libor to help its own trades, and the bank denies that it was doing that. In fact, Deutsche Bank probed itself last year (don't try that at home, kids) and found that maybe only a couple of bad apples might have been involved in Libor manipulation.
Deutsche Bank is one of more than a dozen banks in Europe and the U.S. still under investigation for its handling of Libor. As of last year, the bank expected to be eventually hit with a large fine, according to Handelsblatt.