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)