Deutsche Bank AG has agreed to a US$7.2 billion settlement with the US Department of Justice over its sale and pooling of toxic mortgage securities in the run-up to the 2008 financial crisis.
The agreement in principle, announced by Deutsche Bank’s Frankfurt headquarters early yesterday morning, offers some relief to the German lender, whose stock was hit hard in September after it acknowledged the Justice Department had been seeking nearly twice as much.
It also highlights the Justice Department’s recent efforts to hold European banks accountable for shoddy securities that contributed to the US housing market collapse.
The department sued Barclays PLC on Thursday over similar claims, after having reached US$46 billion in settlements with US banks over the past three years.
Deutsche Bank does not plan a capital increase to cover the settlement, a person close to the bank said. The lender expects the agreement to be finalized early next year, before US president-elect Donald Trump takes office, said the source, who spoke on the condition of anonymity.
Deutsche does expect to record a pretax charge of about US$1.17 billion in its fourth quarter because of the civil monetary penalty, according to its press release.
As part of the agreement, Deutsche Bank would pay a civil monetary penalty of US$3.1 billion and provide US$4.1 billion in consumer relief, such as loan forgiveness. The bank cautioned that there is “no assurance” the two sides will agree on the final documents.
A spokesman for the Justice Department declined to comment.
Settling the mortgage-securities case would mean Deutsche Bank has shaken off one legal headache. Three major probes remain.
Deutsche faces investigations into the alleged manipulation of foreign exchange rates, suspicious equities trades in Russia, as well as alleged violations of US sanctions on Iran and other countries.
Since 2012, Deutsche Bank has already paid more than 12 billion euros (US$12.53 billion) for litigation, including a deal with US mortgage-finance giants Fannie Mae and Freddie Mac.
Meanwhile, the Justice Department is still pursuing mortgage allegations against other lenders in addition to Barclays.
Credit Suisse Group AG is in late-stage negotiations and has resisted a demand by the agency that it pay between US$5 billion and US$7 billion over its sale of mortgage securities, sources have said.
Royal Bank of Scotland Group PLC, Wells Fargo & Co, UBS Group AG and HSBC Holdings PLC are also under investigation, according to company disclosures.
US banks have paid tens of billions of dollars over the past three years to settle with US authorities over misleading investors about the quality of mortgages underlying securities.
In 2013, JPMorgan Chase & Co agreed to pay US$13 billion. The following year, Bank of America Corp agreed to pay US$16.65 billion, while Citigroup Inc cut a deal for US$7 billion. In February this year, Morgan Stanley agreed to pay US$2.6 billion, and in April, Goldman Sachs Group Inc negotiated a US$5 billion deal.
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