EURO BANKS PAY UP
2 more in US deal
Not every European bank is fighting mad.
Credit Suisse and Deutsche Bank have settled long-running US probes into their sale of toxic mortgage bonds in the years leading up to the 2008 financial crisis — and have agreed to pay a total of $12 billion-plus in penalties.
The settlements come in the waning days of the Obama administration after the president launched an initiative years ago to pursue banks for selling subprime debt without warning of the risks, a practice that led to the worst economic crisis since the Great Depression.
Credit Suisse will pony up more than $5.3 billion, while Deutsche Bank will pay $7.2 billion.
The Swiss bank will pay its penalty in two parts — $2.48 billion up front and then $2.8 billion over five years. It was given time to digest the financial penalty to offset the impact on consumers, the bank said.
DB will also be given time to pay off its penalty, which just a few weeks ago was rumored to be nearly twice that size.
“I think the fines are reasonable and represent a positive for the system,” Alberto Gallo, head of global macro strategies at hedge fund Algebris Investments, told Reuters.
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.
A third European bank, UK’s Barclays Bank, refused to settle and on Thursday was hammered by the Justice De- partment with 198-page lawsuit. Its shares sagged 2 percent on the move.
US banks have doled out a total of $46 billion in penalties for their roles in the mortgage meltdown. Both the US and foreign banks bundled mortgage bonds that included plenty of substandard loans but sold them as being entirely Grade A.
When the mortgages failed the bonds cratered, and the housing crisis was underway. With the settlements, investors in DB and Credit Suisse can breathe a sigh of relief.
DB’s American Depository Receipts were up nearly 1 percent in premarket trading, to $18.65. Under the cloud of the US probe, the ADRs are down 23 percent this year but have spiked 80 percent since their September low.
“It’s no great coup, but the settlement reduces the uncertainty,” Ingo Speich, of Union Investment, a Deutsche bank shareholder, told Reuters, adding that he now did not expect the bank to sell more shares to bolster its capital.
Credit Suisse, which 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 to $7 billion that Justice had asked Credit Suisse to pay earlier in negotiations, as reported by Reuters on Monday.
Credit Suisse will take a pretax charge of approximately $2 billion in addition to its existing reserves against these matters in the final three months of 2016, it said.