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Deutsche Bank to Improve Anti-Money Laundering Processes

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Deutsche Bank to Improve Anti-Money Laundering Processes

Deutsche Bank's (DB) involvement in legal issues continues to hamper top-line growth and affect its reputation.

Deutsche Bank Aktiengesellschaft DB has been instructed by the German financial regulator — BaFin — to improve its processes aimed at preventing money laundering and terrorist financing. Also, the regulator has appointed a monitor whose duty would be to report and assess the progress of the ordered measures.

The bank is required to undertake appropriate internal control measures and “comply with general due diligence obligations”. Deutsche Bank said that it agrees with BaFin over need to improve processes to properly control wrongdoings.

Germany’s biggest bank has been under close scrutiny by global regulators for some time now. Earlier this year, the news of Deutsche Bank being listed as “troubled” had broken out, which landed a blow to its reputation. Further, its effect was increased in late June 2018, when the bank’s U.S. unit failed to clear the second level of stress test with the Fed citing “widespread critical deficiencies” in capital planning controls as the reason for the failure.

Moreover, the bank has paid penalties in order to close pending legal hassles this year. In June, it paid fine for improper foreign exchange trading activities conducted in the period between 2008 and 2013 to the Department of Financial Services. Also, in March it settled an antitrust case in the United States that accused it of plotting with some other banks and manipulating the LIBOR benchmark interest rate. At both times the bank had agreed to undertake steps to prevent these improper activities from occurring again.

Another foreign bank recently ordered to improve its internal control processes is Credit Suisse CS. The Swiss Financial Market Supervisory Authority has detected shortcomings in the bank’s anti-money laundering compliance processes after investigating it in relation to legacy cases in the period between 2006 and 2014.

The bank has been asked to accelerate the implementation of steps that had been initiated by it in 2015. Moreover, the regulator will be appointing an independent reviewer in order to make sure that the measures have been implemented. Also, the reviewer would judge their adequacy and effectiveness.

Our Take

Despite various strategies that target strengthening of financial performance, Deutsche Bank’s profitability remains threatened by its involvement in persistent legal hassles and low rate environment in the domestic economy. Also, litigation issues related to past misconducts continue and legal costs might hamper bottom-line growth.

In six months’ time, the stock has lost 13% on the NYSE compared with 9.2% decline recorded by the industry.

Deutsche Bank currently carries a Zacks Rank #4 (Sell).

A couple of better-ranked stocks in the same space are The Bank of N.T. Butterfield & Son Limited NTB and Hang Seng Bank Ltd. HSNGY. Both these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Bank of N.T. Butterfield has remained stable for the current year, in the past 60 days. The company’s share price has jumped more than 40% in the past year.

Hang Seng has witnessed stable earnings estimates for 2018, in the past 30 days. Its share price has risen more than 12% in the past year.

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Hang Seng Bank Ltd. (HSNGY) : Free Stock Analysis Report
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