REUTERS: Deutsche Bank has agreed to a US $ 7.2 billion settlement with the US Department of Justice over its sale and pooling of toxic mortgage securities in the run-up to the 2008 financial crisis.
The agreement in principle, announced by Deutsche Bank’s Frankfurt headquarters early Friday morning, offers some relief to the German lender, whose stock was hit hard in September after it acknowledged the Justice Department had been seeking nearly twice as much.
It also highlights the Justice Department’s recent efforts to hold European banks accountable for shoddy securities that contributed to the US housing market collapse. The department sued Barclays PLC over similar claims, after having reached US $ 46 billion in settlements with US banks over the last three years.
Deutsche Bank does not plan a capital increase to cover the settlement, a person close to the bank said. The lender expects the agreement to be finalized in early 2017, before President-elect Donald Trump takes office, said the source, who spoke on the condition of anonymity.
Deutsche does expect to record a pre-tax charge of about US $ 1.17 billion in its fourth quarter because of the civil monetary penalty, according to its press release.
As part of the agreement, Deutsche Bank would pay a civil monetary penalty of US $ 3.1 billion and provide US $ 4.1 billion in consumer relief, such as loan forgiveness. The bank cautioned that there is “no assurance” the two sides will agree on the final documents.
A spokesman for the Justice Department declined to comment. Settling the mortgage-securities case would mean Deutsche Bank has shaken off one legal headache. Three major probes remain.
Deutsche faces investigations into the alleged manipulation of foreign exchange rates, suspicious equities trades in Russia, as well as alleged violations of US sanctions on Iran and other countries.
Since 2012, Deutsche Bank has already paid more than 12 billion euros for litigation, including a deal with US mortgage-finance giants Fannie Mae and Freddie Mac.
Deutsche Bank’s “troubling practices” were widespread, including when trader Greg Lippmann told colleagues that many home loans the bank was packaging into securities were “crap” and “pigs”, according to a 2011 US Senate subcommittee report.
Lippmann has declined to comment on the report.
There has been fear among investors, companies and regulators that the penalties are too much for Deutsche Bank to withstand.