Unreal Estate

Target of Many Suits, Deutsche Bank Said to Settle One in United States

bayernlb
Headquarter of the Bavarian state bank Bayern LB in Munich.
  • Why it matters

    Why it matters

    Settlement of the U.S. lawsuit brought by Bayern LB will help Deutsche Bank reduce its litigation backlog.

  • Facts

    Facts

    • Deutsche Bank is accused of selling toxic residential mortgage-backed securities to Bayern LB and secretly traded against them.
    • The bank is also being sued in Germany and in Britain for other alleged improprieties.
    • Deutsche Bank may have to pay up to €150 million to settle the suit, one expert estimated.
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Deutsche Bank is about to settle a U.S. lawsuit brought by a German state lender, Bayern LB, that accuses Germany’s largest bank of selling it €605 million ($809 million) worth of toxic residential mortgage-backed securities during the years leading up to the 2008 global financial crisis.

The lawsuit is only one of many that Deutsche Bank is currently facing. In the United Kingdom, the German banking giant is accused of manipulating London Interbank Offered Rate (LIBOR) interest rates and the price of gold. In addition, its co-chief executive, Jürgen Fitschen has been charged in Germany with attempted fraud in a suit brought by the heirs of late German media mogul Leo Kirch.

The bank is poised to settle the U.S. suit with Bayern LB, according to people with knowledge of the situation interviewed by Handelsblatt. Bayern LB said it had reached a “basic agreement” but the details needed to be worked out, Reuters reported. A Deutsche Bank spokesman, Armin Niedermeier, said the bank declined to comment.

“This settlement will of course hurt Deutsche Bank,” said Stefan Bongardt, an analyst with Frankfurt-based Independent Research in an interview with Handelsblatt Global Edition. “But the other lawsuits that are still pending are definitely more serious than this one.”

 

The lawsuit is only one of many that Deutsche Bank is currently facing. In the United Kingdom, the German banking giant is being accused of manipulating Libor interest rates and the price of gold.

Mr. Bongardt estimates that with a potential loss of 20 to 30 percent, a settlement will be around €120 million ($160 million) to €150 million ($200 million).

Deutsche Bank did not want to comment on the lawsuit or the amount of the settlement.

After the U.S. housing crisis started to hit, Bayern LB lost a significant amount of money with securities it had previously bought from Deutsche Bank.

 

fitschen_dpa
Deutsche Bank co-chief, Jürgen Fitschen currently stands trial in Germany over fraud allegations in a legal battle with the heirs of the late German media mogul, Leo Kirch. Source: DPA

 

In a lawsuit that was first filed in New York in 2012, Bayern LB accused Deutsche Bank of selling toxic mortgages to the Bavarian state bank, while its traders were betting against these securities, profiting from the deal.

“Given that the other lawsuits go into several billion,” Mr. Bongardt said, “one can say that major challenges for Deutsche Bank still lay ahead.”

Bayern LB has until the end of the month to agree to the pending settlement, according to New York court documents.

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