Deutsche, Credit Suisse agree set­tle­ments in US

Banks to pay com­bined penalty of more than $12bn

Kuwait Times - - BUSINESS -

ZURICH/FRANK­FURT:

Credit Suisse and Deutsche Bank have been hit with a com­bined penalty of more than $12 bil­lion over the sale of US toxic debt, fur­ther ham­per­ing two of Europe’s lead­ing in­vest­ment banks as they strug­gle with weak earn­ings. The penal­ties stem from an ini­tia­tive launched by US Pres­i­dent Barack Obama to pur­sue banks for sell­ing sub-prime debt with­out warn­ing of the risks, a prac­tice that led to the worst eco­nomic cri­sis since the Great De­pres­sion.

Credit Suisse agreed to pay more than $5.2 bil­lion in a deal with US au­thor­i­ties and the penalty is likely to push it to a sec­ond con­sec­u­tive an­nual loss. The pay­ment, to set­tle claims it mis­led in­vestors when sell­ing mort­gage­backed se­cu­ri­ties in the run-up to the 2008 fi­nan­cial cri­sis, is split into two parts. It will first pay $2.48 bil­lion and later pro­vide $2.8 bil­lion over five years to off­set the im­pact on con­sumers, the bank said.

That news came af­ter Deutsche Bank agreed to a to­tal $7.2 bil­lion set­tle­ment for its pool­ing and sale of toxic mort­gage se­cu­ri­ties, the set­tle­ment also di­vided in a sim­i­lar man­ner. The Ger­man bank had pre­vi­ously said that the De­part­ment of Jus­tice was seek­ing twice that fig­ure. “I think the fines are rea­son­able and rep­re­sent a pos­i­tive for the sys­tem,” said Al­berto Gallo, head of global macro strate­gies at hedge fund Al­ge­bris In­vest­ments.

The penal­ties put the two Euro­pean banks at a fur­ther dis­ad­van­tage to larger US ri­vals, many of whom have al­ready ab­sorbed their own fines for such wrong­do­ing and have strong cap­i­tal cush­ions. US banks ear­lier paid $46 bil­lion in such penal­ties.

Deutsche Shares Rise

In­vestors, who had feared an even big­ger penalty for Deutsche, were re­lieved and its shares gained more than 2 per­cent. They have risen more than 80 per­cent since hit­ting a record low at the end of Septem­ber on fears the bank would need to raise cash from in­vestors. “It’s no great coup but the set­tle­ment re­duces the un­cer­tainty,” said Ingo Spe­ich, of Union In­vest­ment, a Deutsche bank share­holder, adding that he now did not ex­pect the bank to sell more shares to bol­ster its cap­i­tal.

Credit Suisse, who peo­ple fa­mil­iar with the mat­ter ear­lier told Reuters had fought to soften its set­tle­ment, saw its shares slip by more than 1 per­cent. The fi­nal deal is in line with the $5 bil­lion-$7 bil­lion the US De­part­ment of Jus­tice (DOJ) had asked Credit Suisse to pay ear­lier in ne­go­ti­a­tions, as re­ported by Reuters on Mon­day. Credit Suisse said it would take a pre-tax charge of ap­prox­i­mately $2 bil­lion in ad­di­tion to its ex­ist­ing re­serves against these mat­ters in the fi­nal three months of 2016. An­a­lysts at re­gional bank ZKB said that the charge would de­press the bank’s lever­age ra­tio from 3.4 per­cent to 3.1 per­cent. — Reuters

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