South Korea considers suspension of Deutsche Bank

South Korea is looking at the possibility of suspending Deutsche Bank from engaging in derivatives trading for three months on accusations that the bank had not adequately advised state-run companies of the risks involved in investing in derivatives.

The allegations emerged from a tax investigation into foreign private equity funds operating in the Asian nation.

The investigation, by the Financial Supervisory Service, had included not only Deutsche Bank, Germany’s biggest bank, but BNP Paribas, Barclays Capital, and JP Morgan, has been criticized as the beginning of a crackdown on foreign capital.

The FSS began its investigation in February, looking into whether the banks had signed derivatives contracts with state-run companies that contained terms unfavorable to those Korean companies, and whether they had been warned of the risks inherent in the deals.

One contract in question was a currency option with Korea Highway Corp. The deal was worth Won115.5 billion ($114 million). While FSS officials would not enumerate the losses likely on the contract, an official with Korean Highway Corp said that there had been no irregularities with the contract, that there had been a warning on risks, and that the company is making a profit on the deal.

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