News the US Department of Justice is seeking $14 billion from Deutsche Bank to settle civil claims over its handling of the mortgage-backed securities crisis sent the troubled German lender’s shares reeling and back towards multi-year lows. But now the bank faces a billion fine. Wells Fargo dropped 1.6 percent after the House Financial Services Committee became the latest entity to announce an investigation into allegations that the huge USA bank fraudulently opened millions of unauthorized customer accounts.
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The energy index was a close second, declining 0.94 percent as oil prices fell 2.2 percent on worries of oversupply. The stock hit a 52-week low of 11.07 euro following the Brexit vote.
Noting that negotiations were just beginning, Deutsche said it had “no intent” to settle potential civil claims over its products “anywhere near the number cited”.
The justice department, in concluding previous investigations into the sale of mortgage-backed securities that soured during the financial crisis, typically has presented initial penalties higher than what banks ultimately paid, people familiar with those negotiations have said.
Deutsche Bank was already preparing to pay some level of fine or settlement, as it had amassed 5.5 billion euros ($6.2 billion) in litigation reserves as of the end of this past June. Among those were Commerzbank, which was down 3 percent and Royal Bank of Scotland, which fell by 5.3 percent.
Deutsche Bank AG extended losses as analysts signaled that the German lender’s capital position will be eroded by mounting legal costs such as charges for a US penalty tied to faulty securities.
It’s been a while since the USA mortgage market, a big part of the global financial meltdown eight years ago, reared its ugly head but Deutsche Bank is feeling it today.
While the inflation data pushed the dollar to a more than two-week high against a basket of major currencies, uncertainty ahead of a Bank of Japan policy meeting on Wednesday limited the dollar’s gains against the yen.
The fine has emerged at a hard time for Deutsche Bank. Still, the figure seemed to be much more than Deutsche Bank expected.
The settlement with Deutsche Bank opens a new round in Justice Department lawsuits, because most of the banks that have already settled are USA -based.
Record low interest rates have narrowed the difference between the bank’s borrowing costs and what they earn in interest on loans, eroding profits.
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“RBS could have to pay up to $13bn to settle the claims”.
