Deutsche Bank to pay $7.2 billion to close US mortgage probe
23 December 2016
Deutsche Bank AG, Germany's biggest bank, said it has reached a $7.2 billion deal to resolve US investigations into its dealings in mortgage-backed securities that followed be 2008 financial market meltdown.
Deutsche Bank will pay $3.1 billion in civil penalty and another $4.1 billion in relief to consumers under a settlement with US authorities, according to a statement issued by the bank early in the day.
The fine will cut Deutsche Bank's pretax profit by $1.2 billion this quarter and remain a drag on its earnings for years, as the firm dips into its cash reserves.
The settlement ''might help in the short run because a major source of uncertainty has been cleared,'' said Michael Huenseler, an investor at Assenagon Asset Management, which holds about 0.8 percent of Deutsche Bank's shares. ''But it's still higher than many have expected and it will pose a long-term drag on profitability.''
The deal, however, comes as a big relief for Deutsche Bank as the Justice Department had initially demanded $14 billion in penaly.
Credit Suisse Group AG, meanwhile, announced that it had settled a related probe with the DoJ for $5.28 billion.
The Swiss bank will pay a $2.48 billion in civil penalty and $2.8 billion in relief for homeowners and communities hit by the collapse in home prices. The bank will take a pretax charge of about $2 billion in addition to its existing reserves during the fourth quarter.
The Obama administration is pressing to wrap up investigations of Wall Street firms for creating and selling the subprime mortgage bonds that fueled the 2008 financial crisis.
Deutsche Bank still faces US probes into other matters and potentially expensive civil suits. The bank had set aside 5.9 billion euros ($6.2 billion) for all of its outstanding legal costs as of 30 September, when its common equity Tier 1 ratio stood at 11.1 per cent. The bank targets a level of at least 12.5 per cent in 2018.
Each $1 billion of litigation costs not covered by provisions would lower the ratio by 20-25 basis points, according to Bloomberg analyst Arjun Bowry.