By Agency Reporter

Wednesday, 9 Feb 2011

Deutsche Bank AG, Germany’s biggest bank, may lose a ruling in the first case heard by the country’s top civil court over an interest-rate swap the lender sold to companies and local governments, a judge said.

The bank may have violated its duties when advising Ille Papier Service GmbH on a swap purchase, Federal Court of Justice’s Presiding, Judge, Ulrich Wiechers, said at a hearing on Tuesday.

According to Bloomberg, the lender might have had the duty to disclose an initial negative market value that covered its fees or even to advise the company not to buy the product, he said.

“When advising in financial matters, the bank must guard the interests of its customer alone,” Wiechers said at the hearing in Karlsruhe. The assessment is preliminary and a ruling is scheduled for March 22.“A conflict of interest must be disclosed. That the bank earned money from the initial market value may be such a conflicted interest.”

Deutsche Bank has been sued by local governments, community-owned utilities and companies that claim the lender sold swaps without adequately disclosing risks. Cases over swap agreements have spread through Europe with similar disputes in Italy and England.

“If the court really intends to require banks to disclose fees built into a swap, it would open a new door,” a lawyer for Deutsche Bank Retna Hall, said at Tuesday’s hearing, adding that, “This would shake up the whole market because it would require banks to disclose their profit from a deal. Such a ruling could even cause a new financial crisis.”

Source: Punch