Stocks fell in early trading in Europe on Friday, Sept. 16, 2016, led by banks as Deutsche Bank shares tumbled following news the U.S. Justice Department is seeking a $14 billion settlement over its dealings in mortgage-backed securities before the 2008 financial crisis.
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The weighty demand from the Department of Justice (DoJ) comes after Deutsche has already paid out billions in fines over interest-rate fixing and sanctions violations, and as it battles through some 8,000 ongoing legal cases and a painful restructuring. This news also hinged on rumors, coming from a German Magazine that chose not to reveal its source. Bank stocks across the region fell in Deutsche’s slipstream.
The bank indicated that it has “no intent” to settle at the level cited. Still, the figure seemed to be much more than Deutsche Bank expected.
Deutsche Bank’s US -listed shares were down 9.4 percent. The European Union placed a steep bill on Apple of $13 billion euros to be paid for tax breaks the American company received from the Irish government.
Putting the settlement in context, BofA paid $17 billion to reach a settlement in a similar case in 2014, while Goldman agreed to a $5.1 billion settlement with the USA earlier this year, including a $2.4 billion civil penalty and $875 million in cash payments, to resolve US allegations that it failed to properly vet mortgage-backed securities before selling them to investors as high-quality debt.
Deutsche Bank shares traded in NY plunged 8.4% to $13.50 in pre-market action Friday after the company confirmed that Justice negotiators had staked out “an opening position” of $14 billion in their discussions.
And it is not just the nightmare legacy issues that are dragging the bank down, as the prevailing ultra-low interest rate environment continues to crimp the bank’s ability to generate a decent margin between borrowing and lending money.
USA and European stocks were moderately lower in early trading Friday after Deutsche Bank said it wouldn’t settle with the Department of Justice over its handling of mortgage-backed securities in the run-up to the 2008 financial crisis.
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Germany’s Finance Ministry commented on Friday it expects a “fair result” from the negotiations, but indicated it would not interfere with the talks. Goldman Sachs Group Inc. agreed to a $5.1 billion settlement with the USA earlier this year, including a $2.4 billion civil penalty and $875 million in cash payments, to resolve U.S. allegations that it failed to properly vet mortgage-backed securities before selling them to investors as high-quality debt. Deutsche Bank’s shares have lost around half of their value this year. Since 1998, the bank has led or participated in loans of at least $2.5 billion to companies affiliated with Mr. Trump, according to a Wall Street Journal analysis of public records and people familiar with the matter. Any settlement above 5.4 billion euros would imply a capital increase is needed just to pay the fine. Chief executive, John Cryan has a tough task ahead to steer the bank into profitability amid challenging conditions.
