One of Spain’s biggest hotel groups is suing Deutsche Bank for €500m in damages over the alleged mis-selling of risky foreign exchange derivatives that it says left it with crippling losses.
The claim, which was filed last month to the High Court in London, is the latest escalation in a scandal involving accusations that Deutsche sold exotic financial products to small and medium-sized companies in Spain, pushing some into financial distress.
Some alleged victims are companies that are part of the Ibiza-based Palladium Hotel Group, Spain’s seventh-largest hotel chain, which claims that Deutsche took advantage of its naivety to sell it derivatives it did not understand.
Deutsche told the Financial Times it would defend itself “vigorously” against Palladium’s claim, which it said was “without foundation”.
The German lender also stressed that the lawsuit from Palladium was an isolated one and considered it to be different to those it had settled in the past. “We see no reason to expect any further individual claims of anything like this size,” it said.
The wider allegations have led to the departure of two senior Deutsche bankers and out-of-court settlements, including a €10m payout to Europe’s largest wine exporter, J García Carrión.
Deutsche is conducting its own internal probe into the allegations, codenamed “Teal”. The bank says only “a limited number of clients” are directly affected but it is investigating whether others might have been subject to similar issues. The FT has reported that between 50 and 100 companies could be involved.
Palladium — which operates 50 hotels in Europe and the Americas, including the Ushuaïa Ibiza Beach Hotel and Hard Rock Ibiza — says the complex derivatives it bought from Deutsche were touted as safe hedges against foreign exchange fluctuations, as well as changes in interest rates.
However, the family-owned group alleges it resulted in fees and losses “so large that [it] had to take out substantial loans” to cover them.
By 2019 Palladium had entered into 259 derivatives transactions. At their peak in 2017, they involved an outstanding notional amount — the total amount that the contracts reference — of €5.6bn, a sum that eclipsed the balance sheet of the hotel group, according to the lawsuit.
That compares with Palladium’s consolidated sales of about €700m a year and its annual earnings before interest, taxes, depreciation and amortisation of more than €150m.
According to the lawsuit, the deals were put together for Palladium by Antonio Matutes Juan, the brother of the company’s founder, Abel Matutes Juan, a former European commissioner and Spanish foreign minister, who remains chair of the hotel group.
Although the multinational is one of the larger and more sophisticated companies in dispute with Deutsche, Palladium’s US lawyers, Quinn Emanuel, argue that the company lacked both the expertise as well as the tools to understand how risky the derivatives were, and that the bank was fully aware of the knowledge gap.
They argue that the lender exploited a “close personal relationship” that Antonio Matutes Juan developed with Amedeo Ferri-Ricchi, Deutsche’s then head of foreign exchange in Europe.
The lawsuit says Ferri-Ricchi courted Antonio Matutes Juan in Ibiza in October 2012, soon after Palladium suffered losses on foreign exchange transactions with other banks. The trader allegedly touted a foreign exchange derivatives strategy dubbed “DB Haven Liability Cheapener” as designed “to be safe”.
Antonio Matutes Juan, the lawsuit says, “placed trust and confidence” in Ferri-Ricchi’s judgment, buying derivatives that were “in practice impossible for a corporate client” to understand.
When the bets soured, Deutsche suggested restructuring the transactions in ways that incurred more fees and resulted in even deeper losses, the lawsuit states, accusing the lender of misrepresenting the downside risks.
The litigation is ongoing. Ferri-Ricchi, who is not a defendant in the case and not involved in the legal proceedings, left the German lender in 2019, a year before the Teal probe started. He denies the allegations made against him in the claim.
In a statement, Deutsche described Palladium as a “sophisticated investor with extensive experience of using derivatives”.
It added that the group “traded and settled these products with Deutsche Bank over a number of years without complaint. The transactions were carried out with the full knowledge and authorisation of the company, and Palladium well understood both the potential benefits and risks involved.”
Palladium declined to comment.
Additional reporting by Jane Croft in London