Deutsche Bank AG DB 2.43 % erroneously transferred $ 6 billion to a hedge-fund client’s custody account in June after a junior foreign-exchange trader misunderstood instructions calling for a much smaller payment, according to a person familiar with the matter.
The error was reversed in 24 hours and the German lender recovered the money, the person said. The erroneous transaction was first reported by the Financial Times.
The mistake, which involved a U.S. hedge fund, was chalked up to a communications error tied to instructions left by a client salesperson who was on leave, the person familiar with the matter said. In that employee’s absence, a colleague incorrectly paid out a gross, rather than net, amount, failing to account for an offsetting value, the person said.
Although the error was corrected, it points to operational and risk-control deficiencies that have dogged the German lender, which is restructuring under new leadership and splitting its investment bank in half, in part to assure regulators and investors that businesses will be held more accountable for compliance.
Deutsche Bank has struggled to improve its technology systems and keep up with stricter bank regulations, more-complex reporting requirements and fast-changing markets. The bank has vowed to increase technology spending and improve surveillance to prevent both technological and human missteps.
New co-chief executive officer John Cryan in a July memo to employees cited “antiquated and inadequate technology” and too much reliance on “manual labor” as core problems that have hurt the bank’s efficiency.
Deutsche Bank is one of the largest global currency-dealing banks. A former senior trader at a rival bank said erroneous trades aren’t common on FX desks, because most systems have so-called “sanity checks” to prevent accidental large transactions.
Errors in the range of $ 50,000 to $ 100,000 occur at times, this trader said, adding that a big erroneous trade can impact the market. It is unclear whether Deutsche Bank’s June error had any effect on currency prices.