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Deutsche Bank to settle US subprime case

Dec 23 2016 15:26

Berlin - Deutsche Bank has agreed to pay a total of $7.2bn to settle a case with the US Department of Justice over its role in the subprime mortgage crisis, the lender said in a statement Friday.

The payment includes a $3.1bn fine and $4.1bn in relief to consumers as part of an agreement in principle with US authorities, it said.

Deutsche has been negotiating the terms of the fine with the DoJ since September, when the US authority targeted it with a $14bn penalty.

The agreement came just a day after the DoJ sued British financial giant Barclays, accusing the bank of massive fraud in the sale of mortgage-backed securities, which triggered the 2008 global financial crisis.

Deutsche chief executive John Cryan had always insisted that the German lender would pay less than the initial US demand.

And the bank brushed off fears the consumer relief element would have a significant impact on its results.

"The financial consequences, if any, of the consumer relief are subject to the final terms of the settlement, and are not currently expected to have a material impact on 2016 financial results," the bank said.

Germany's biggest lender will publish preliminary 2016 results as scheduled on February 2.

Further probes

However, the settlement does not resolve probes into whether the bank manipulated foreign-currency rates and precious metals prices, and allegations it facilitated transactions that helped investors illegally transfer billions of dollars out of Russia.

Deutsche also faces civil lawsuits related to claims that its traders manipulated key interbank interest rates. It remains unclear how much it will cost the bank to wrap up these cases.

It has already paid more than $9bn in fines and legal settlements worldwide since the start of 2008, according to Bloomberg News data.

Fears that the latest settlement would outweigh the firm's provisions of $6.2bn for outstanding legal cases have weighed on Deutsche.

Investors fear their stakes will be diluted if the lender - already struggling with a massive restructuring and a morass of legal entanglements around the world - is forced to raise fresh capital to cover the fine.

The bank's share price fell earlier this week on reports that it was close to a deal to settle the DoJ case.

Barclays and Deutsche were among several major banks implicated in the global financial crisis, along with Royal Bank of Scotland and Credit Suisse.

But Thursday's US move to sue Barclays - which rejects the allegations - in open court stood out, with the DoJ choosing not to seek a mutually acceptable resolution, as it has in most cases when taking enforcement action against major financial institutions.

The outgoing US administration of President Barack Obama is also working to complete investigations of Wall Street firms for creating and selling the subprime mortgage bonds that fuelled the 2008 financial crisis.

Authorities have already taken more than $46bn in fines from six US financial institutions over their dealings in mortgage-backed securities.

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