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 US housing market in the lead up to the Great Recession.
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Banks and energy companies are leading a broad decline in early trading on Wall Street. The government has accused the banks of misleading investors about the quality of their loans.
The number, although preliminary, would rank among the largest paid by a bank to settle similar claims.
The bank noted that the negotiations with Justice Department have just begun, and the US agency has invited the company to submit a counter proposal as a next step.
The amount proposed by the US Justice Department comes on top of the €12 billion ($13.5 billion) Deutsche Bank has already shelled out in legal fines since 2011.
If the lender can’t get the Justice Department to significantly reduce the fine, then it has a problem.
The US investment bank Goldman Sachs in April agreed to pay more than $5 billion to settle similar allegations. This figure can also be regarded as the opening bid which can go much lower depending upon the type of negotiations between the U.S. government and the German lender.
Deutsche Bank had 5.5 billion euros set aside for litigation costs, with a further €1.7bn held as unreserved contingent litigation liabilities, but it does not spell out exactly what that sum is for. News of the potential fine also hit shares in other banks.
Many financial institutions were investigated about issuing and underwriting of residential mortgage-backed securities in the run-up to the 2008 financial crisis.
RBS shares fell 4.43 per cent or 8.6p to 185.6p as investors grew anxious the bank – in which the Government has a majority stake – would have to pay up to £10bn to settle the claims. In the mortgage-backed securities matter, the bank is aiming for an amount between $2 billion and $3 billion, according to knowledgeable sources.
Through the rosiest colored glasses, one might say that things at Deutsche Bank have been really, massively, insanely bad of late.
That doesn’t include at least another $1 billion in loan commitments that Deutsche Bank made to Trump-affiliated entities.
Deutsche Bank, which was dubbed the world’s riskiest bank by the International Monetary Fund in June, announced a 98% plunge in profit for the second quarter of this year.
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Analysts remain bearish on RBS, with Deutsche Bank reiterating its “sell” stance on the stock yesterday, without specifying a price target on the stock.
