Clearinghouse Declares German Bank Maple in Default

Days after central banks initiated a stress test of two trade-plumbing firms in Europe, LCH.Clearnet Group Ltd. said a German bank had defaulted on its financial obligations at the clearinghouse operator.

Martin Pluves, chief executive officer at LCH, declared Frankfurt-based Maple Bank GmbH to be a "defaulter" in a Feb. 8 notice posted to the clearinghouse's website.

Maple, whose parent company Maple Financial Group Inc. is partly owned by National Bank of Canada and Ontario Teachers' Pension Plan, is a member of LCH's clearing service for repurchase agreements. Repos are short-term trades in which borrowers pledge bonds as collateral in exchange for cash.

The default by the member of LCH's repo service stems from moves by Germany's financial watchdog BaFin to close in on the Maple unit in the wake of a tax probe first disclosed in September last year, The Wall Street Journal reported.

A spokeswoman for BaFin said in an emailed statement the regulator banned Maple Bank GmbH from certain payments and disposals "due to the threat of balance-sheet over indebtedness."

National Bank of Canada warned its regulatory capital levels would take a hit as a result, The Journal reported Sunday. Representatives for LCH and Maple declined to comment.

Maple's struggles added to existing tremors in European stock markets Monday, though the firm's activity is small relative to other banks in the region.

Investor nervousness about the health of big banks is on fresh display, with shares of large banks in Europe down significantly in Monday trade. Deutsche Bank AG shares are down 9.5%, Barclays PLC shares are down 5.3% and Credit Suisse Group AG shares have fallen 5%, according to FactSet.

Maple's circumstances underscore the importance of regulators' preparedness for any glitches in financial-market plumbing. The Bank of England along with Germany's Bundesbank and BaFin last Tuesday started to simulate a hypothetical default by a large bank at both the SwapClear unit of London Stock Exchange Group PLC's LCH and Deutsche Bö rse AG's Eurex Clearing, The Journal reported last week.

Write to Katy Burne at [e-mail]

(END) Dow Jones Newswires

February 08, 2016 12:55 ET (17:55 GMT)

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