The bank’s shares have lost half their value this year, dropping from 7.6 percent to 12.10 euros. 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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The company’s shares tumbled more than 8 percent on Friday after it said that the Justice Department asked it to pay $14 billion to settle the probe in connection with the bank’s issuance and underwriting of residential mortgage-backed securities or RMBS and related securitization activities between 2005 and 2007.
The week was dogged by worries among investors that central banks are hesitant to continue pumping monetary stimulus into the financial system as part of efforts to bolster inflation rates and support economic growth.
‘The negotiations are only just beginning.
“Even without bad outcomes on litigation, the capital position is precariously thin in the event of a failure to sell Postbank”, said Piers Brown, a Macquarie analyst with an underperform rating on the stock.
JPMorgan said earlier about the lawsuit issues of Deutsche Bank that any agreement over this issue which exceeds $4 billion will create problems for the bank regarding capital.
The S&P 500 is adding a new industry to its traditional groups for the first time since the dotcom era. It described the DOJ’s proposal as the start of “negotiations”.
The possibility of a $USUS14 billion ($A19 billion) fine for Deutsche Bank and a slide in oil prices hit financials and energy stocks, leading major global stock indexes lower.
In June, Deutsche Bank said it had set aside US$5.5bn to resolve pending legal matters. RBS is being investigated by the DoJ over its own mortgage-backed securities business. The final penalty stood at $7 billion. Federal regulators have been looking to settle with Deutsche Bank, as it has done with other major Wall Street firms, for its role in the mortgage bubble and financial crisis. Goldman Sachs Group Inc. agreed to a $5.1 billion settlement with the U.S. earlier this year, including a $2.4 billion civil penalty and $875 million in cash payments, to resolve United States allegations that it failed to properly vet mortgage-backed securities before selling them to investors as high-quality debt.
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In late 2013, Deutsche Bank agreed to pay $1.9 billion to settle claims that it defrauded USA government-controlled Fannie Mae and Freddie Mac, America’s biggest providers of housing finance, into buying $14.2 billion in mortgage-backed securities before the 2008 financial crisis.
