“With nothing in the economic numbers to say U.S. rates should be moving up, and growing signs of losing momentum, expectations have largely diminished toward the Fed doing anything in September”, said ANZ Bank New Zealand chief economist Cameron Bagrie.
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Shares of Deutsche Bank plummeted almost 10 percent Friday after the company said it was not willing to settle in the amount of $14 billion in claims with the U.S. Justice Department. The bank’s total market value is only €16.7 billion.
While traders have all but ruled out the possibility of the Fed raising interest rates at its meeting on Tuesday and Wednesday, residual doubts and questions about when the US central bank may finally pull the trigger hurt sentiment on Wall Street.
(Open): The market opened lower, with bank shares hit after Deutsche Bank said it faced a $14bn penalty to settle a probe by USA regulators into the selling of mortgage-backed securities.
“Given the very precarious finances of some European banks, of which Deutsche is one of the riskiest and systemically important, it’s disturbing and appears myopic and needlessly punitive”, Neil Wilson, a markets analyst at London spread better ETX Capital said on the DOJ’s fine. Deutsche Bank has set aside just €5.5 billion for future litigation charges, according to its last earnings report.
Stocks are closing lower on Wall Street, led by declines in banks and energy companies.
While Deutsche is the first European bank that have started negotiations to settle civil claims over dealings in shoddy mortgages, the bank’s woes are having a knock-on effect for other large European banks that are also waiting to agree settlements for similar allegations. “The negotiations are only just beginning”, Deutsche Bank said in a statement.
Deutsche Bank’s settlement will comprise a different list of recipients from the Goldman case, a source close to the matter said, adding that the lender had already settled some claims three years ago. In 2013, JPMorgan Chase & Co agreed to pay $13bn to settle allegations by the US authorities that it overstated the quality of mortgages it was selling to investors in the run-up to the 2008-2009 financial crisis.
Other big banks have reached deals in recent years with U.S. authorities over their mortgage activities in the run-up to the financial crisis. Deutsche’s risk-weighted assets total around €400 billion, so the 1.7% required translates into a capital shortfall of almost €7 billion. Goldman Sachs Group Inc. agreed to a $5.1 billion settlement with the US earlier this year, including a $2.4 billion civil penalty and $875 million in cash payments, to resolve USA allegations that it failed to properly vet mortgage-backed securities before selling them to investors as high-quality debt.
Barclays Plc and the Swiss banks UBS Group and Credit Suisse are among others waiting for settlement talks to be concluded.
Deutsche was once one of Europe’s most successful players on Wall Street.
In June, the International Monetary Fund described the bank as a “major systemic risk”, leaving its chief executive John Cryan to strive to convince markets that Deutsche Bank was bound to recover.
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Bank of America paid the highest penalty when it doled out $16.6 billion in 2014 to settle its claim. For one, it still has to account for improper trading in Russian Federation.
