Deutsche Bank agree to $7.2 bn settlement with US over risky mortgages

Deutsche Bank contributed directly to an international financial crisis in 2008

The Dollar Business Bureau

Deutsche Bank agreed to a $7.2 billion settlement with the US Department of Justice over its sale of toxic mortgage-backed securities prior to the 2008 financial crisis.

The department said, Deutsche's nod represents the largest such resolution for its conduct in misleading investors in residential mortgage-backed securities. This settlement is also higher than the Citigroup’s $7 billion paid to federal and state authorities in 2014.

"Deutsche Bank did not merely mislead investors: it contributed directly to an international financial crisis," Attorney General Loretta Lynch said.

Deutsche's chief executive John Cryan termed the bank's conduct between 2005 and 2007 as "unacceptable." “The bank had exited many of the underlying activities and improved standards,” he said.

The Frankfurt-based bank had reached the settlement agreement in principle with the US authorities on December 23.

The Justice Department had made an opening demand of $14 billion from the bank. Before turning to Deutsche, the US Justice Department settled $46 billion with US banks over the shoddy securities which led to the US housing market collapse and financial meltdown.

Bank of America Corp (BAC.N) settled for $16.7 billion, while JP Morgan Chase & Co (JPM.N) agreed to pay $13 billion.

As part of the deal, Deutsche Bank will pay $3.1 billion as civil monetary penalty, compensate $4.1 billion in consumer relief to homeowners, borrowers and communities affected by its practices.

Deutsche Bank also agreed to a statement of facts that explains how it misled investors about the billions of dollars worth of mortgage securities issued by the bank during 2006 and 2007.

Zurich-based Credit Suisse would pay $5.3 billion for settlement, while Deutsche Bank will slash bonuses for senior employees by about 90%.

The Dollar Business Bureau - Jan 18, 2017 12:00 IST