DEUTSCHE BANK: The U.S. -listed shares of Deutsche Bank, the German financial conglomerate, plunged $1.30, or 9 percent, to $13.46 after the bank said it did not intend to pay the $14 billion settlement that the Department of Justice had proposed.
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Deutsche Bank has set aside about $6.2 billion to deal with the various legal challenges it’s facing. Bank stocks across the region fell in Deutsche’s slipstream. The cost of insuring the bank’s debts against default jumped to about 8 percent.
The DoJ had invited it to submit a counter-offer, it said.
The bank indicated that it has “no intent” to settle at the level cited.
A Frankfurt trader described the amount the Justice Department was asking for as “exorbitant” and said the high figure gave the impression that negotiations with the bank are only just starting, rather than nearing a settlement.
US stocks were lower Friday afternoon as the possibility of a $14 billion fine against Deutsche Bank weighed on financial stocks, especially on the big Wall Street banks.
Can Deutsche afford the bill?
The high initial demand by USA authorities also shows that Deutsche Bank has a long way to go to sort out the some 7,800 legal disputes it is involved in, says Fairesearch’s Mr. Hein.
Deutsche Bank’s problems are likely to alarm political leaders in Europe’s largest economy and the home to the European Central Bank. But the final amount will probably be significantly less, because the US often begins negotiations with a tough posture and high price.
Proactive Investors meanwhile quoted Accendo Markets as commenting that RBS was “suffering most today because it remains in the firing line stateside for its own RMBS mis-selling and actions in the run-up to the financial crisis”.
The DoJ has taken a tough stance in settlement negotiations with other banks, requesting sums higher than the eventual fine. Among those were Commerzbank, which was down 3 percent and Royal Bank of Scotland, which fell by 5.3 percent.
In 2014, it asked Citigroup to pay $12 billion to resolve an investigation into the sale of shoddy mortgage-backed securities, sources said. Deutsche’s risk-weighted assets total around €400 billion, so the 1.7% required translates into a capital shortfall of almost €7 billion.
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Deutsche Bank gladly told shareholders in July that it planned to close its biggest pending legal cases this year, including one for its sales of residential mortgage-backed securities in the United States before the financial crisis.
