The bank confirmed market speculation of an opening position by the Justice Department of $14 billion and added that the DoJ has asked it to submit a counter proposal.
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Shares of Deutsche Bank AG (USA) (NYSE: DB) plunged almost 10 percent at $13.41 ahead of Friday’s morning session after the German-based bank was slapped with a $14 billion penalty from the U.S. Justice Department.
The DoJ wants $14 billion (12.48 billion euros) to settle claims that Germany’s biggest bank mis-sold mortgage-backed securities. Investors may be forgiving if they’re given a concrete and acceptable litigation figure, a concrete strategy and a concrete plan for asset sales such as Deutsche’s United Kingdom insurance business.
Asian stock markets meanwhile rallied Friday on doused expectations of a Federal Reserve interest rate hike next week after another round of below-par U.S. data. These are all challenges that new Chief Executive John Cryan has to continue to face.
ANALYST TAKE: Mike van Dulken, Head of Research at Accendo Markets, said a retreat in bank shares was partly to blame for the soft performance in Europe. The cost of insuring the bank’s debts against default jumped to about 8 percent. Investors will instead look for clues on when the central bank will eventually pull the trigger.
Deutsche Bank employs roughly 100,000 people, which would be quite the upset to the economy if they should go under.
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 bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amount”.
The financial crisis is still haunting Deutsche Bank.
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“Do I think we’ll see a $14-billion settlement? No”. Goldman Sachs Group Inc. agreed to a $5.1 billion settlement with the United States 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. Friday’s hefty claim against Deutsche was higher than the German bank expected and has raised questions about whether RBS should set aside more cash. Germany will hopefully have better luck in this regard than France, which failed to prevent BNP Paribas’ record $8.97 billion fine over US sanctions violations.
