Investors dumped shares of banks in North America and Europe after the U.S. Department of Justice told Deutsche Bank to pay $14-billion to settle an investigation into its selling of mortgage-backed securities, a far bigger bill than expected.
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Shares of Germany’s biggest bank were down 7.1 percent at 12.87 euros ($13.59) in Frankfurt trading.
Deutsche Bank has been asked to pay $14bn (£11bn) to settle a United States probe into mortgage-linked financial products, the lender has said.
On news of the filing today, Deutsche was quick to respond that it had no intention to settle these potential claims anywhere near that figure.
However, the German bank, run by Briton John Cryan, said it had “no intent” of paying the full amount, and wants to go back to the negotiating table.
“Even if Deutsche Bank eventually manages to lower the amount to $5 billion, that alone would eat up most litigation reserves”, according to Dieter Hein, an analyst at Fairesearch, an independent research house.
European stocks were wrapped up in red Friday, with a selloff in Deutsche Bank AG pacing punishment among bank shares and rounding out what looks set to be a losing week for the market.
Other European banks fell as well.
The fine has emerged at a hard time for Deutsche Bank.
Deutsche Bank’s shares stumbled 8.5%, wiping off roughly €1.5 billion from the German lenders’ market capitalization.
Many analysts also expect Deutsche Bank’s eventual settlement to be substantially below the US demand, although it could still trouble the bank.
“The size of the Deutsche fine is putting pressure on the financials and is combined with the likelihood of the Fed putting off raising rates next week”, said Thomas Wilson, senior investment manager at Brinker Capital in Philadelphia.
At the current figure, the fine facing Deutsche Bank it is one of the largest penalties handed out by U.S. authorities in the aftermath of the financial crisis.
The bank, which employs around 100,000 people, said it regarded the DoJ demand as an opening shot.
Deutsche Bank’s settlement will comprise a different list of recipients from the Goldman case, a source close to the matter said, adding that the lender had already settled some claims three years ago.
In addition to the United States mortgage investigation, Deutsche Bank faces litigation and regulatory probes relating to issues such as foreign-currency rate manipulation and precious metals trading.
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The resultant losses suffered by investors, along with foreclosures across the U.S., formed one of the triggers for the financial crisis.
