BNP Paribas Probed Over Middleman Fee for Deutsche Bank Deal

(Bloomberg) -- BNP Paribas SA’s deal for Deutsche Bank AG’s business catering to hedge funds, a landmark agreement aimed at vaulting the lender into the Wall Street elite, is being scrutinized by French regulators over a fee to a middleman.

The bank paid hundreds of thousands of pounds to former Goldman Sachs Group Inc. banker Simon Lloyd months after the transaction was completed in September 2019, according to people familiar with the matter. The French anti-corruption agency, known as AFA, identified the incident during a routine audit and is due to issue a report in the next few weeks.

Britain’s Financial Conduct Authority has also received complaints about the payment, the people said, although it isn’t clear if it will open a formal inquiry.

The probe highlights the red flags raised when banks pay outsiders to open doors or cultivate counterparties. Societe Generale SA, for instance, paid more than $1 billion in 2018 to resolve U.S. allegations it paid bribes to secure deals with Libya. Last year, Deutsche Bank settled a suit -- without admitting liability -- from a Dutch housing firm stemming from payments to a middleman who arranged their derivatives trades.

BNP Paribas, Deutsche Bank, AFA and the FCA declined to comment. Lloyd, who isn’t personally the focus of the inquiry and hasn’t been accused of any wrongdoing, didn’t respond to messages sent to his LinkedIn profile or to phone messages left at his office.

Shares in BNP Paribas slid 5.4% to about 39 euros each at 3:12 p.m. in Paris, leading the falls in European bank stocks.

Prime Retreat

Deutsche Bank’s 2019 decision to exit the business serving hedge funds, known as prime brokerage, was part of CEO Christian Sewing’s retreat from equities. BNP Paribas and Citigroup Inc. emerged as potential buyers.

BNP Paribas Chief Executive Officer Jean-Laurent Bonnafe was counting on the deal to vault the French lender into the top tier of the global industry, which is dominated by Wall Street giants including Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc.

Enter Lloyd, an Australian who founded a two-person advisory shop in London called Barbon Advisors LLP after working at Goldman Sachs for a decade through 2011.

Early in the process, Lloyd gave a heads up to a BNP Paribas executive that Deutsche Bank was looking to sell, according to one person familiar with the transaction. Some officials at the French bank later became concerned over the possible appearance of impropriety, the person said.

Internal Committee

Meanwhile, executives at Deutsche Bank were surprised to receive a phone call from Lloyd flagging the French bank’s interest and wondered why their counterparts at BNP Paribas hadn’t just gotten in touch directly, another person said.

The Lloyd payment came to the attention of BNP Paribas officials in early 2020 after it was initially sent for approval via the procurement department, which typically deals with suppliers. An internal committee looked into it and the finders fee was eventually paid in the first half of 2020, more than six months after the deal was announced and the unit’s 1,000 employees began to move to the French bank from the German one.

BNP Paribas has called the deal a success. The French bank says it is on course to become the biggest prime broker in Europe and aims to eventually be one of the four largest on the planet, with client balances reaching between $250 billion to $300 billion, Bloomberg reported at the time of the deal.

In the quarter that ended Sept. 30, the BNP Paribas unit that includes prime brokerage reported revenue rose 21% to 466 million euros ($548 million), beating the highest estimate.

©2020 Bloomberg L.P.