Even at $7 billion the settlement amount would be absurdly high. Incidentally Deutsche Bank has been one of the most successful European players on Wall Street. This success has however led to a slew of lawsuits being filed against it, like many of its peers, which can be traced back to the boom years before the crash.
Germany’s biggest lender, Deutsche Bank has reported that the U.S Department of Justice has asked it to pay $14 billion in order to settle an investigation into its business of selling mortgage backed-securities.
The settlement claim by the U.S DOJ far outstrips expectations of the bank and its investors for such settlement costs. Clearly lengthy negotiations will now follow.
Although it is not clear as to what amount will be reasonable to both parties, the amount of $14 billion is too high, since it could the bank under severe financial strain given its fragile finances and furthermore, it would also rock investor confidence in the bank.
With the news hitting the market, DB’s US-listed shares fell by 8% in after-hours trading.
“Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited. The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts”, read a statement from Deutsche Bank today.
The Department of Justice declined to comment.
According to a source who is familiar with the matter at hand, Deutsche Bank’s settlement is likely to comprise of a different list of recipient’s than those available with the DoJ since DB had already settled some claims 3 years back.
In late 2013, Deutsche Bank had agreed to pay $1.9 billion to settle claims that it defrauded Fannie Mae and Freddie Mac when it forced it to buy mortgage-backed securities before the 2008 financial crisis.
While Fannie Mar is a company controlled by the U.S. government, Freddie Mac is one of the biggest providers of housing finance in the United States.
The asking price of $14 billion, or even if negotiations slash it down by 50% to $7 billion, would make this as the largest amount paid by a bank to U.S. authorities in recent years.
On its part, Deutsche Bank has not disclosed the amount it has provisioned for a plausible settlement. Its overall legal provisions stood at 5.5 billion euros at the end of the second quarter.
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