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Deutsche Bank Loses German Court Case Over Investor Losses

Germany’s highest court has ruled that Deutsche Bank didn’t sufficiently disclose the risks associated with interest rate swaps when selling them to customers.

The court rejected the bank’s argument that even a high school graduate could calculate the formula of the swap. According to the court, it wasn’t sufficient to explain the steps of the mathematical operation unless the banks also explained the risks clearly.

The bank was told to compensate some 541,074 Euros plus interest to one of its customers.

As an adviser to customers, the bank had a duty to find out the level of risk they were ready to take on. This should not be assumed based on previous dealings.

The court also said that the bank could not rely on the customer’s professional qualifications such as a degree in economics.

This judgment seems to confirm that bank must act in the interest of the client, irrespective of how sophisticated the client is. It defeats the premise of caveat emptor.

This interpretation is quite different from Singapore based on what had happened from the Minibond incident. Back then, investors defined as “vulnerable investors” (elderly and lowly educated) had a chance of getting back their full principal whereas it was almost impossible for the other investors.

Deutsche Bank Loses First German High Court Case Over Swaps (Bloomberg)

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Nuts says 11 years ago

This will encourage more dubious and unscrupulous FIs into Singapore. Even brand name international players will adopt hardsell or shady tactics. Afterall it is caveat emptor or you die your business over here.

More people should start to get their investments and even insurance from proven pro-customer jurisdictions in developed countries. Most of my investments are already in large ETFs on the London and HK bourses. And in addition to the SAF insurance, I’ve taken up a term CI from a major US firm — even with additional overseas risk charges, it’s still comparable to the cheapest local version. And the US one has less onerous definitions of CI compared to Singapore’s.

sender says 11 years ago

Today, Hong Kong Court also states the banks’ fiduciary duty to their customers in Hong Kong. All minibond holders to get back almost all their failed investments, whether they are mom and pop or experienced types of investors.

Looks like other european courts including German, US and Hong Kong Courts are standing by their bank customers. What about Singapore? Caveat Emptor?

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