Following lengthy negotiations with the US Department of Justice, Germany’s biggest bank, Deutsche Bank, has agreed in principle to a $7.2 billion deal with US authorities to resolve a probe into the alleged mis-selling of mortgage-backed securities, according to a report in the Financial Times today.
The Deutsche deal, which Finance Magnates last reported on in October after Deutsche’s CEO John Cryan failed to reach an agreement, comprises a $3.1 billion civil penalty with $4.1 billion to be provided in relief to consumers.
The deal comes after a difficult period this year for the German bank, in which its share price fell to a record low in September after news broke that the DoJ had made a $14 billion claim.
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Investors had expressed concerns regarding the bank’s ability to withstand such a large amount given that its market capitalisation at the time was around $18 billion. Whilst the $7.2 billion figure is higher than some analysts and investors had expected, there is a general sense of relief that the cash constituent of the deal is just $3.1 billion.
This is the latest in a series of settlements the US government has reached with banks for creating and selling mortgage-backed securities ahead of the 2008 financial meltdown which include $13 billion for JPMorgan Chase, $7 billion for Citigroup and $17 billion for Bank of America, according to the FT.
Deutsche’s announcement came just hours after it emerged that US prosecutors had sued Barclays and two of its executives over allegedly fraudulent mortgage-backed securities the bank issued as the US housing bubble was at its peak.
The suit claims the bank “securitised billions of dollars of loans it knew had material defects” and financed lenders that it knew were issuing mortgages to customers who would be unable to repay them. The loans in question defaulted “at exceptionally high rates early in the life of the deals”.
The news comes after the breakdown of talks aimed at reaching a negotiated settlement with the DoJ and seeks unspecified civil penalties from the bank and the two executives.