Bank to pay $9.8b for role in credit crisis
Germany’s Deutsche Bank has reached a final settlement with the United States Justice Department over its handling of mortgagebacked securities before 2008, resolving one of its biggest litigation risks.
The global banking and financial services company agreed to pay US$7.2 billion (NZ$9.8b) and admitted to misleading investors, according to the department.
The penalty was in line with the bank’s December 23 announcement that it had reached an agreement in principle in the matter. It will pay a US$3.1b civil penalty and provide US$4.1b in relief to homeowners.
‘‘This resolution holds Deutsche Bank accountable for its illegal conduct and irresponsible lending practices, which caused serious and lasting damage to investors and the American public,’’ US Attorney-General Loretta Lynch said in a written statement.
‘‘Deutsche Bank did not merely mislead investors: It contributed directly to an international financial crisis.’’
Deutsche Bank, Germany’s biggest bank, continues to defend itself from other US probes and potentially expensive civil suits – liabilities that chief executive John Cryan has set out to resolve as he seeks to restore confidence.
The bank declared a hit of US$1.2b from the US Justice Department settlement to fourthquarter pretax profit on December 23, saying at the time that ‘‘negotiation of definitive documentation’’ was still being finalised.
The bank still faces investigations into whether it manipulated foreign-currency rates and precious-metals prices and whether it facilitated transactions that helped investors illegally transfer billions of dollars out of Russia. In a memo to employees in December, the lender said it found ‘‘deficiencies’’ in the bank’s systems and controls in Russia, but no indications that it breached sanctions in the country.
And on Tuesday (local time), the US Supreme Court refused to stop lawsuits that accuse some of the world’s biggest banks, including Deutsche Bank, of conspiring to rig the London Interbank Offered Rate, known as Libor.
The court rejected the banks’ appeal without explanation, leaving them vulnerable to the prospect of paying out billions of dollars in damages if the lawsuits succeed.
Deutsche Bank had set aside €5.9 billion (NZ$8.76b) for all its outstanding legal costs as of September 30, about €2b (NZ$2.97b) of which it used for the settlement with the US.
The final settlement caps a negotiation process that had sent the company’s shares to a record low in September, when Deutsche Bank said the US Justice Department had made an opening request of US$14b to settle. The news spurred concern that the bank might not have enough capital. –Washington Post