Mortgage securities

Deutsche Bank Accepts $7.2 Billion U.S. Settlement

  • Why it matters

    Why it matters

    Deutsche Bank shares fell last year amid fears that it would not be able to pay a U.S. Justice Department fine over mortgage-backed securities but the final settlement is in fact lower than many had feared.

  • Facts

    Facts

    • The U.S. Justice Department imposed $7.2 billion of penalties on Deutsche Bank over the sale of toxic mortgage securities.
    • Deutsche Bank will pay a civil monetary penalty of $3.1 billion and provide $4.1 billion in consumer relief to homeowners, borrowers and communities.
    • It is the highest penalty of its kind imposed on a single institution.
  • Audio

    Audio

  • Pdf
John Cryan
CEO John Cryan apologized unreservedly as Deutsche Bank agreed on a $7.2 billion settlement. Source: DPA

Deutsche Bank has agreed to a $7.2 billion settlement in the United States over the sale of toxic mortgage securities, the U.S. Justice Department announced Tuesday. The bank had agreed to a preliminary deal last month.

Attorney General Loretta Lynch said in a statement that Deutsche Bank “did not merely mislead investors: it contributed directly to an international financial crisis.”

She said the settlement “holds Deutsche Bank accountable for its illegal conduct and irresponsible lending practices which caused serious and lasting damage to investors and the American public.”

The penalty is the largest of its kind paid by a single entity: more than the $7 billion Citigroup paid in 2014.

Other U.S. banks have paid bigger penalties, but these include fines for institutions they acquired during the crisis.

John Cryan, Deutsche Bank’s chief executive, said the bank’s conduct in the run up to the 2008 financial crisis was unacceptable.

In a statement, he said the bank has improved standards and exited many of the underlying activities that led to the settlement. He added, “as we enter 2017, we are pleased to have resolved this matter.”

“The bank's conduct encouraged shoddy mortgage underwriting and improvident lending that caused borrowers to lose their homes because they couldn’t pay their loans.”

Benjamin Mizer, deputy assistant attorney general

As part of the settlement, Germany’s largest bank signed up to a Statement of Facts, where it admits to misleading investors on the state of loans underlying mortgage securities issued by the bank in 2006 and 2007. The statement also said the bank deliberately concealed from investors the fact that many borrowers had second liens on their properties.

Benjamin Mizer, the deputy assistant attorney general, said in a statement that Deutsche Bank’s actions “hurt our economy and threatened the banking system.” He went on to say that “the bank’s conduct encouraged shoddy mortgage underwriting and improvident lending that caused borrowers to lose their homes because they couldn’t pay their loans.”

The case has weighed on Deutsche Bank shares in recent months. Markets panicked in September when the bank admitted the U.S. Justice Department had initially suggested fines of $14 billion. By December the bank said it had reached an agreement in principle of $7 billion.

Deutsche Bank will pay a civil monetary penalty of $3.1 billion and provide $4.1 billion in consumer relief to homeowners, borrowers and communities. “For the fourth quarter of 2016 we expect the civil monetary penalty to have a negative impact on our pretax result of nearly 1.2 billion dollars,” CEO Mr. Cryan said in a statement to Deutsche Bank employees.

The U.S. Justice Department has already reached $46 billion in settlements with U.S. banks over the toxic lending that led to the 2008 financial crash and is now setting its sights on European institutions.

Deutsche Bank still faces investigations into foreign currency trading, and on whether it breached sanctions against Russia.

 

Meera Selva is an editor for Handelsblatt Global. To contact: selva@handelsblatt.com

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!