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New probe casts shadow over Deutsche Bank revamp

Juergen Fitschen, Co-CEO of Deutsche Bank AG gives a speech during an economic conference organized by the conservative Christian Democratic
Juergen Fitschen, Co-CEO of Deutsche Bank AG gives a speech during an economic conference organized by the conservative Christian Democratic

By Thomas Atkins

FRANKFURT (Reuters) - Deutsche Bank's struggle to break with the past and achieve a "cultural transformation" has suffered another setback after co-CEO Juergen Fitschen was implicated in a criminal investigation.

The bank set out an ambitious agenda last year to create a leaner, safer lender - exiting risky business lines, abandoning proprietary trading and implementing a "red card" system for staff meant to raise the standard for behavior.

But the list of costly scandals and legal complications keeps getting longer with Fitschen, a principal architect of Deutsche's makeover, named on Monday as a suspect in a investigation into falsifying evidence.

"This shakes the very foundations of trust in the bank," said one Germany-based shareholder.

EU antitrust regulators landed a fresh blow when they included Deutsche on a list of big banks to be fined multi-million euro sums for suspected rigging of benchmark interest rates, a source told Reuters on Tuesday.

Deutsche Bank stands by Fitschen, whose contract was extended until 2017 only last week, saying it was "absolutely convinced" that he would be cleared in the latest investigation.

Munich prosecutors seek to determine whether Fitschen gave misleading evidence in a decade-old civil suit brought by the heirs of late media mogul Leo Kirch, who accuse the bank of undermining the business.

The ball is for now in Fitschen's court, a spokesman for the Munich prosecutor said on Tuesday. "We'll wait and see whether the defense will make a statement after viewing the file," he told Reuters Television.

PRICEY PROBLEMS

Deutsche's legacy issues are becoming increasingly costly.

The bank set aside 1.2 billion euros for potential legal charges in the third quarter, wiping out profit and raising the total amount of legal reserves to 4.1 billion euros.

And that's hardly going to be enough, said one of the bank's top five shareholders, speaking on condition of anonymity.

"Only something greater than 6 billion euros will take the bank to the safe side," the shareholder said.

The list of complications keeps lengthening and includes a probe into whether its traders helped rig reference interest rates including Libor.

Fitschen and fellow co-CEO Anshu Jain proposed sweeping reforms last year designed to set behavioral benchmarks for staff and management, saying that a cultural transformation was needed to get the bank back on a solid, sustainable footing.

"The sins of the past, of which there were many, are still being uncovered and retribution exacted," said a chief investment officer at one of Deutsche Bank's 30 largest shareholders.

"Why investors think that (banking) industry corporate governance, non-executives and auditors are actually any better now than during the crisis - when all are essentially unchanged - bemuses me," the manager said, who asked not to be identified because of the sensitivity of his position.

Deutsche Bank is not alone in struggling to move on from past mistakes.

It and rival banks face a mountain of reforms as regulators attempt to make the financial industry safer and more ethical.

While some banks, like Britain's Barclays and the Netherlands' Rabobank , saw senior management leave following scandals, Deutsche Bank has kept faith with its own leadership, prompting some to worry that the lawsuits and probes will overburden a team already charged with a mighty task.

"It might become a dangerous distraction for the leading team at Deutsche Bank and for the one person who has been consistent in leading Deutsche," said Hans-Peter Burghof, banking professor at Hohenheim University in Stuttgart.

(Additional reporting by Sinead Cruise and Helene Durand in London, Joern Poltz in Munich, and Kathrin Jones and Arno Schuetze in Frankfurt; Editing by David Cowell)

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