FRANKFURT, July 9 (Reuters) - Commerzbank foreign exchange traders routinely performed trades of a type forbidden by the bank before two of them were fired for acting against clients’ best interests, a Frankfurt court heard on Wednesday.
A disputed forex deal that prompted Commerzbank to fire a trader was not a singular case but a routine practice, a Frankfurt labour court heard on Wednesday.
The lawyer representing one of the traders, who cannot be named publicly according to German law, said the dismissal of the 20-year Frankfurt-based veteran was unjustified and that he should be reinstated.
“It is undisputed that this (contested forex) deal was carried out in the same way in 2013,” the lawyer said.
The presiding judge also said the type of trade later deemed inappropriate may have been more than a one-time misstep.
“(Commerzbank‘s) works council disagreed with the dismissal, arguing, among other things, that such a deal has happened hundreds of times in the past,” the judge said.
Commerzbank said it reacted immediately to the manipulation attempt by dismissing the trader.
“The bank has a zero tolerance policy regarding violations of compliance guidelines. This applies even with regard to a mere attempt to engage in conduct contrary to regulations,” Commerzbank said in an emailed statement on Wednesday.
Commerzbank’s decision to terminate the trader’s contract comes as banks around the world intensify their efforts to curb bad behaviour and root out potentially illegal behaviour at a precarious time for the industry.
It is the first time bank sanctions have affected Frankfurt-based staff in a widening international investigation by regulators of alleged manipulation and collusion in the global currency market that has already led to around 35 people being suspended, placed on leave or fired.
The Frankfurt case is by no means the focus of international investigations into the rigging of foreign exchange rates, which are fundamental to the financial system.
Eight financial firms have been fined billions of dollars for manipulating reference interest rates, and the probe into the largely unregulated $5.3 trillion-a-day foreign exchange market could prove even costlier.
Commerzbank fired the Frankfurt-based trader and later a London-based trader on suspicions they tried to manipulate the Polish zloty’s euro exchange rate.
The traders were tasked with buying zloty worth 500 million euros on behalf of Swedish furniture maker IKEA in January 2014. To avoid price spikes that such a relatively large sum can create, traders usually divide the sum into many small amounts that are then handled over various exchange platforms.
The traders planned to carry out that strategy for the bulk of the deal, but they also planned to use about 50-100 million euros, or a sizeable chunk of the total, to ‘massacre’, or move the price to IKEA’s detriment, according to an email conversation and a taped telephone chat, which was quoted in court.
The traders and the IKEA treasurer would then have been able to show they struck a ‘great’ deal on average, Commerzbank’s lawyer said.
The quality of deals that traders and company treasurers strike is often reflected in bonus payments.
The controversial part of deal was, however, never actually carried out as Commerzbank’s compliance unit became aware of it and prevented it, a person close to Commerzbank said, adding that in the 2013 deal, a different bank carried out the more contentious part of the deal.
Worldwide investigations of currency markets and reference interest rates show banks are still struggling to control the behaviour of some traders, even in the face of tighter regulatory scrutiny following the 2007-2008 financial crisis.
Authorities in the United States, Britain, Switzerland, Germany and Singapore are examining whether traders from different banks worked together to influence currency prices, but also whether they traded ahead of their own customers, or failed to accurately represent to customers how they were determining the prices.
Commerzbank’s local rival Deutsche Bank,, one of the world’s largest forex trading banks, has suspended several currency traders in North and South America. (Reporting by Arno Schuetze; editing by Thomas Atkins and Louise Heavens)