Banks also fell, led by a plunge in Deutsche Bank after the giant German bank said it wouldn’t settle with the Department of Justice over its handling of mortgage-backed securities in the run-up to the 2008 financial crisis.
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Deutsche Bank made a scant 20-million euro profit in the second quarter despite 7.4 billion euros ($8.3 billion) in net revenue.
That settlement included a US$2.39 billion civil penalty, US$1.8 billion in other relief, including funds for homeowners whose mortgages exceed the value of their property, and an US$875 million payment to resolve claims by cooperative and home loan banks among others.
It’s been a while since the U.S. mortgage market, a big part of the global financial meltdown eight years ago, reared its ugly head but Deutsche Bank is feeling it today.
The bank indicated that it has “no intent” to settle at the level cited.
Deutsche Bank released a statement saying: “The negotiations are only just beginning”.
MILAN/LONDON, Sept 16 European shares ended at six-week lows on Friday, with Deutsche Bank dragging banking stocks lower after it said that the USA government is demanding billions of dollars to settle a mortgages case.
Speaking to Reuters, banking analyst Ingo Frommen of German bank LBBW said that even a fraction of the initial demand could force the bank into an emergency recapitalisation.
Kepler Capital Markets set a €15.30 ($17.00) price objective on Deutsche Bank AG and gave the company a “buy” rating in a research note on Monday. In 2013, it paid $1.9 billion to settle similar claims, resolving a lawsuit filed by the Federal Housing Finance Agency.
And US shares of Deutsche Bank plunged 9.2 per cent, while large US banks also saw their share price hit, with Dow members Goldman Sachs and Citigroup losing almost one per cent.
Settlement negotiations will now go on for months.
Deutsche’s new CEO John Cryan has led a cost-cutting and restructuring drive that’s involved job cuts and the bank’s withdrawal from some smaller countries.
Goldman Sachs settled charges of irregularities in mortgage-backed lending for $5.1bn in January this year.
The sale of residential mortgage-backed securities triggered the 2008 financial crisis.
The sums paid by some of the nation’s largest banks are meant to offer financial relief to some homeowners.
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. The index, commonly called Wall Street’s “fear gauge”, has fallen only twice this week. Its litigation bill since 2012 has already hit more than 12 billion euros. Chief Executive Officer John Cryan, who took over past year, already suspended the dividend to preserve capital and has repeatedly ruled out tapping investors.
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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.
