FSA to question Deutsche on Rustagi's case
The Financial Services Authority are likely to question the Bank over Anshul Rustagi's alleged overstating of profits in his trading books.india Updated: Jan 10, 2006 19:14 IST
The UK's Financial Services Authority supervisers are likely to question officers at Deutsche Bank AG London over an incident in which one of its city-based derivatives trader originally from Delhi was suspended for alleged overstating of profits in his trading books by about 30 million pounds.
The trader, named Anshul Rustagi, had been handling collateralised debt obligations and he will face a disciplinary hearing today, according to sources in the bank, who said all his trading positions have been corrected. Reportedly the bank has informed the FSA about the issue.
Allegedly the overstating of profits had been going on for around two months and the bank did not consider it criminal as it felt it was an isolated incident, according to sources quoted in the media. They claim that Rustagi was directed by the bank to not attend office in December pending an internal inquiry after his colleagues found out the alleged aberration.
Rustagi's portfolio -- collateralised debt obligations -- has been a controversial financial instrument, more popular among investors seeking higher returns. These are complex products in which pools of debt derivatives are repackaged into tranches and sold on to investors.
Deutsche Bank has been a keen participant in this segment and runs one of the largest such books in a market that is booming in spite of several large scale defaults involving companies like WorldCom, Parmalat and Delphi and the downgrades of General Motors and Ford, which are included in a majority of CDOs.
The sources said Rustagi, a relatively junior trader with the bank, handled CDOs that act as a form of insurance against corporate borrowers defaulting on their bonds. It is now known why he had inflated the trading profits. The alleged act is described as non-criminal with none of the clients of the bank losing any money.
Rustagi, called Rusty, who hails from India, has been an achiever. A product of the Springdales private school in New Delhi, he was runner-up in the "Leaders in Making" Award, given out by the Indian Institute of Management in Lucknow, when he graduated from the institute in Bangalore in 2003. He had registered with the FSA in 2004 and has been trading for the bank for less than two years.