The HFSA has established that from 2007, DBL marketed and concluded a number
of foreign exchange swap transactions linked to changes in the spot EUR/HUF, CHF/HUF
and USD/HUF exchange rates with several Hungarian banking counterparties. Swap
positions created trough these transactions were to become highly profitable to
DBL in case of weakening of the spot HUF exchange rate. DBL’s potential profit
inherent in these foreign exchange linked swap positions was unlimited, while
its potential losses were capped.
The HFSA has subsequently found that by concluding high volume spot HUF foreign
exchange transactions on 15 October 2008, DBL caused significant weakening of
the EUR/HUF spot exchange rate. In the meantime, DBL strongly urged its foreign
exchange linked swap counterparties to close-out the swap positions with high
profits to DBL by making increased margin calls with reference to increasing counterparty
risk.
In its client statement, DBL has stated that it hedged the foreign exchange swap
transactions and any profit to be made on such swap transactions would be significantly
offset by any loss incurred in its hedging and DBL has taken the general view
in relation to its spot HUF foreign exchange activity of 15 October 2008, that
these transactions were induced by genuine and justifiable reasons, and that it
strove to minimise the possible market impacts when executing them. According
to DBL, these transactions had the aim of managing the risks deriving from the
unforeseeable market turbulence, were executed with considerable care, and in
line with the best market practices.
The HFSA has established that the risk management needs originating from the
existing foreign exchange linked swap positions had not justified the sale of
spot HUF on the foreign exchange market in such volume as DBL executed on 15 October
2008. The HFSA has not accepted Deutsche Bank London’s reasoning, and thus, imposes
a supervisory fine of HUF 90,000,000.
In establishing the resolution, it has been taken into account by the HFSA as
aggravating circumstances that the transactions took place during an especially
sensitive period for the domestic money and capital markets, and that DBL attempted
to use the consequences of its spot foreign exchange market transactions to influence
its counterparties in the outstanding foreign exchange linked swap positions.
On the other hand, DBL’s full cooperation throughout the HFSA procedure, and the
fact that it did not realise any financial gains from the transactions under investigation
have been considered as mitigating circumstances.
Budapest, 22nd April 2010
Hungarian Financial Supervisory Authority
