The Justice Department is seeking a $14 billion civil settlement with Deutsche Bank over the German financial institution’s alleged role in artificially propping up the USA housing market in the lead up to the Great Recession.
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Deutsche Bank’s shares now stand at around 10 per cent of their pre-crisis value, after losing some 45 per cent of their value since the beginning of 2016 – making them the worst performer on the DAX index of leading German shares.
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 negotiations are only just startning.
The Wall Street Journal, citing “people familiar with the matter”, reported that the $14 billion fee would settle a series of high-profile mortgage-securities probes during the financial crisis. Investors’ fading confidence over the company’s stock performance reflects rising concern over its ability to negotiate with DoJ, as the bank’s legal reserve is significantly below the demanded settlement charge.
“Do I think we’ll see a $14-billion settlement? No”. Goldman Sachs agreed to reimburse $5.1 billion earlier this year over troubles with mortgage-backed securities that were sold to investors as high-quality debt.
Deutsche Bank also confirmed that DOJ did demand $14 billion.
Shares in Royal Bank of Scotland Group (LON:RBS) have tumbled to the bottom of the FTSE 100 leaderboard amid renewed fears that it could face a hefty settlement bill for mis-sold mortgage-backed securities in the United States in the run-up to the financial crisis. In 2014, Bank of America Corp.
Deutsche Bank is among many financial institutions investigated for selling shoddy residential mortgages to gullible investors who believed the packaged securities were reaping healthy profits.
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One of Donald Trump’s closest allies on Wall Street is a now-struggling German bank. Like many of its peers, it has since faced a slew of lawsuits that often trace back to the boom years before the crash. That will force the bank to go for more litigation reserves which it already has more than numerous banks on the Street. Other lawsuits are for the rigging of borrowing benchmarks Libor and Euribor, used to set the price of mortgages and derivatives. These are all challenges that new Chief Executive John Cryan has to continue to face.
