Stocks fell as investors dumped shares of banks in North America and Europe after the US Department of Justice proposed Deutsche Bank pay $US14 billion to settle an investigation into its selling of mortgage-backed securities.
Advertisement
(Open): The market opened lower, with bank shares hit after Deutsche Bank said it faced a $14bn penalty to settle a probe by USA regulators into the selling of mortgage-backed securities.
Deutsche Bank said it was working to secure an outcome “similar to those of peer banks which have settled at materially lower amounts”.
Shares in Deutsche Bank AG plunged Friday, Sept. 16, 2016, after the revelation that the U.S. Department of Justice is seeking United States dollar 14 billion to settle civil claims over its handing of residential mortgage-backed securities.
In July, one of Deutsche Bank’s USA operations failed a stress test by the Federal Reserve, which it criticised for having “broad and substantial weaknesses” in capital planning and for making insufficient progress on previous year.
The bank’s stock price fell to as low as $13.33 per share after closing at $14.76 a share Thursday. While most investors do not expect a rate increase, there is a small but noticeable likelihood there will be one.
Although the USA mortgage investigation is gaining most attention, Germany’s largest bank is battling against many other probes relating to activities in Russian Federation and trading issues such as foreign-currency rate manipulation and precious metals trades.
“The negotiations are only the beginning”. Goldman Sachs made a settlement for $5.1 billion at the start of the current year.
Deutsche Bank’s attempt to negotiate a lower settlement will likely trigger several months of talks, which could further erode its share price.
Investors are concerned over the uncertain settlement amount while keeping in view Deutsche Bank’s provisions for legal settlements of €5.4 billion ($6 billion) for the year. Deutsche Bank had €5.5 billion set aside for settlements and fines at the end of June, with chief financial officer Marcus Schenck saying in July that the lender will probably face “material” litigation charges in the second half. “The bank confirms market speculation of an opening position by the DoJ of Dollars 14 billion and that the DoJ has invited the bank as the next step to submit a counter proposal”, as per the bank’s press release.
Deutsche Bank has vowed to fight a massive demand from the US Department of Justice.
Deutsche said the claim it was facing was in relation to its “issuance and underwriting of residential mortgage-backed securities” and related activities between 2005 and 2007.
The German-based bank is among many financial institutions investigated over dealings in discreditable mortgages in the run-up to the financial crisis.
Advertisement
NEW NEIGHBORS: The S&P 500 is adding a new industry to its traditional groups for the first time since the dotcom era.
