The Justice Department is seeking a $14 billion civil settlement with Deutsche Bank over the German financial institution’s alleged role in artificially propping up the USA housing market in the lead up to the Great Recession.
Advertisement
DEUTSCHE BANK: Shares in Deutsche Bank AG plunged after the company said it did not intend to pay the $14 billion settlement of potential civil claims as proposed by the U.S. Department of Justice.
The bank’s US-listed shares fell 8 percent in after-hours trading.
The Department of Justice declined to comment on the probe. And in a report by the International Monetary Fund (IMF) released in June, the bank was described as a “major systemic risk”.
Deutsche Bank is among many financial institutions investigated over dealings in securities based on mortgages to people with shaky credit in the run-up to the 2008 financial crisis.
ANALYST VIEWPOINT: “September used to be touted as the month to watch this year, as markets expect central banks to take decisive actions”.
“We had an unusually calm summer considering the Brexit vote and the USA political risk and I think we are now paying it back”, said ABN Amro’s Chief Investment Officer Didier Duret.
A U.S. mortgage fine of more than US$4bn would be a worry for Deutsche, as it could also face a penalty of US$1bn-$4bn related to alleged misconduct in its Russian operations, said JP Morgan analyst Kian Abouhossein. In 2014, Bank of America Corp. agreed to pay $16.7 billion in penalties to settle similar charges.
In 2014, United States bank Citigroup settled a probe into mortgage-backed securities for $7bn (£5bn) while in a similar case this year, Goldman Sachs agreed to pay $5bn (£4bn).
The latest development is a further reminder of how banks are continuing to contend with the regulatory fallout after the financial crisis.
A settlement of around $2 – $3 billion was deemed to be fair, as it had already paid $1.9 billion in 2013 to resolve similar claims, according to WSJ.
The figure represents the USA government’s opening bid and the ultimate settlement could be much lower.
‘If the final bill is at €5 billion or more Deutsche Bank will not be able to avoid a capital hike anymore, ‘ he noted.
Claims filed against Deutsche allege the company manipulated subprime loans and foreign exchange rates.
Advertisement
The Department of Justice has asked the banking giant for the payout after an investigation into its selling of mortgage-backed securities. They have a hold recommendation on the shares.
