UPDATE 1-Deutsche Bank to pay fine for problems in lending program

Thursday, 19 Dec 2013 | 11:00 AM ET

WASHINGTON, Dec 19 (Reuters) - A Deutsche Bank AG unit will pay $6.5 million to settle civil charges stemming from "serious and operational deficiencies" in a lending program mainly for hedge funds, Wall Street's self-funded regulator said on Thursday.

The Financial Industry Regulatory Authority (FINRA) said Deutsche Bank Securities Inc settled the matter without admitting or denying the charges.

FINRA said that during a 2009 examination of the bank, regulators found problems with Deutsche's financial records that led to "overstated capitalization and inadequate customer reserves."

"We have resolved these issues and are pleased to put these matters behind us," a Deutsche Bank spokeswoman said.

The problems were related to a program that lends cash and securities mostly to hedge fund customers through a Deutsche Bank affiliate in London, FINRA said.

Deutsche Bank's books reflected that it owed $9.4 billion to its affiliate, but neither the company nor FINRA examiners could "readily determine" how much of the debt stemmed from the enhanced lending program and how much was from its proprietary trading, FINRA said.

The "lack of transparency" in the bank's books meant it was not able to quickly monitor accounts related to the enhanced lending business.

FINRA also found instances in which the bank made inaccurate calculations that resulted in overstating its capital or failing to set aside enough reserves to properly protect customer securities, the regulator said.