Deutsche Bank tentative settles DoJ lawsuit on residential mortgage-backed securities for $7.2 billion

This marks the first settlement, in a possible string of RMBS related lawsuits, filed by the U.S. DoJ for European banks.

Deutsche Bank has agreed to settle with the U.S. Department of Justice’s lawsuit related to its residential mortgage-backed securities (RMBS) and other activities for the period of 2005 to 2007.

The bank has stated it is willing to pay $7.2 billion to settle the lawsuit.

Incidentally, the amount is significantly less than the $14 billion the DoJ has demanded to settle the claims. The figure had raised concerns on the bank’s stability and the risks it would pose to the financial system. The news had then also caused Deutsche Bank’s stock to plummet.

Under the terms of the settlement, Deutsche Bank will pay $4.1 billion in consumer relief as well as $3.1 billion as civil monetary penalty, in the United States.

Significantly, the bank has made it clear that the $7.2 billion settlement is not the final agreement. Thus, it would be incorrect to presume that the DoJ and the bank has agreed on the final compensatory figure.

The bank is expected to debit a pretax charge of nearly $1.17 billion in its fourth quarter, due to expected civil monetary penalty.

This settlement marks the first, in a possible string of mortgage-related lawsuits by the U.S. DoJ for European banks.

On Thursday, the DoJ sued Barclays Plc for fraud in the sale of mortgage-backed securities preceding the 2008-2009 financial crisis.


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