The U.S. -listed shares of Deutsche Bank, the German financial conglomerate, plunged $1.36, or 9 percent, to $13.39 after the bank said it did not intend to pay the $14 billion settlement that the Department of Justice had proposed.
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(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.
The Department of Justice, which declined to comment on Friday, has taken a tough stance in settlement negotiations with other banks, requesting sums higher than the eventual fine.
In April of previous year, Deutsche Bank also paid a record $2.5 billion to settle American and British charges that it had manipulated the London Interbank Offered Rate, or Libor, affecting commercial interest rates.
Earlier this year, the DoJ agreed a £3.7bn settlement with Goldman Sachs over similar claims.
Deutsche Bank gladly told shareholders in July that it planned to close its biggest pending legal cases this year, including one for its sales of residential mortgage-backed securities in the USA before the financial crisis.
The fine has emerged at a hard time for Deutsche Bank. One of the concerning news was that Deutsche Bank unexpectedly had been asked to pay a hefty amount to settle mortgage investigations.
Take Citigroup. In 2014 the United States bank was asked to pay $12 billion to resolve investigation into sale of shoddy mortgage-backed securities.
A $14bn fine, or even half that sum, would still rank among one of the largest paid by banks to United States authorities in recent years. The highest so far has been Bank of America’s $16.5 billion in 2014.
Spot gold prices XAU= slid 0.25 percent to $1,310.50, a two-week low.
Royal Bank of Scotland is facing the threat of a crippling multi-billion-pound fine for selling toxic mortgage securities. Its stock has plunged 42 per cent this year in Germany as of the close of trading on Thursday.
Those talks are attempting to settle civil claims that involves Deutsche Bank’s activities in residential mortgage-backed securities (RMBS) between 2005 and 2007. That will force the bank to go for more litigation reserves which it already has more than numerous banks on the Street. Deutsche Bank has set aside just €5.5 billion for future litigation charges, according to its last earnings report.
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.
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These are the mortgages and FX cases, an investigation into suspicious equities trades in Russian Federation and allegations of money laundering.
