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Justice Offers Deutsche Bank a $14B Settlement


A specialist trader works at his post on the floor of the NYSE

Even if we take a more realistic figure of $8 billion – which is what some investors now expect and is about in the middle of what dovish investors and hawkish USA authorities are looking at – that would still blow through Deutsche’s 5.5 billion euros ($6.2 billion) of provisions set aside for settlements and fines at end-June.

Deutsche Bank has been asked to pay $14bn (£11bn) to settle a USA probe into mortgage-linked financial products, the lender has said.

European banking shares have plummeted after the US Department of Justice (DoJ) slapped Deutsche Bank with a hefty settlement proposal.

So it wouldn’t be THAT insane to think that, with morale in the toilet and everyone from interns to senior executives just trying to get through the day without crying at their desks, a proposal from the Justice Department to make a huge investigation into DB’s mortgage practices go away with one check might be met with “Fine, whatever, just tell us where to sign”.

The company confirmed that it has begun negotiations with the Justice Department, according to a statement released late Thursday from Deutsche Bank’s headquarters in Frankfurt, Germany. Goldman Sachs also ended up with a $5.06 billion fine to settle claims for their part in the financial crisis. Still, the figure seemed to be much more than Deutsche Bank expected. The bank has said that it does not intend to settle these claims on the amount mentioned by the Department of Justice.

She was asked whether German officials had the impression that the settlement demand was some sort of retaliation to the European Commission’s ruling that Ireland gave 13 billion euros in illegal tax breaks to USA firm Apple.

Deutsche Bank is in the midst of a painful restructuring as it is coping with a tougher regulatory environment, cost cutting and settling multiple legal cases. It would be one of the largest penalties levied on a bank, but Deutsche insisted it would not pay the full amount demanded by the DoJ.

With futures and options contracts expiring, about 9.3 billion shares changed hands on United States exchanges, above the 6.6 billion daily average for the past 20 trading days, according to Thomson Reuters data.

“Even without bad outcomes on litigation, the capital position is precariously thin in the event of a failure to sell Postbank”, said Piers Brown, a Macquarie analyst with an underperform rating on the stock.

The US banks that have reached settlements for allegedly mis-selling mortgage securities include Bank of America which paid $17 billion in 2014.

ANALYST VIEWPOINT: “September used to be touted as the month to watch this year, as markets expect central banks to take decisive actions”.