Deutsche Bank in $7.2-bn mortgage settlement with US

NEW YORK/FRANKFURT: Deutsche Bank has agreed to a $7.2-billion settlement with the US Department of Justice over its sale and pooling of toxic mortgage securities in the run-up to the 2008 financial crisis.

The agreement in principle, announced by the bank early Friday morning, offers some relief to the German lender, whose stock was hit hard in September after it acknowledged the Justice Department had been seeking $14 billion, nearly twice as much.

It also represents the Justice Department’s first accord with a European bank over misconduct that contributed to the US housing market collapse. The department sued Barclays PLC on Thursday over similar claims.

Deutsche Bank does not plan a capital increase to cover the settlement, a person close to the bank said. However, it does expect to record a pretax charge of about $1.17 billion in its fourth quarter because of the civil monetary penalty.

US BANKS HAVE PAID TENS OF BILLIONS OF DOLLARS OVER THE PAST 3 YEARS TO SETTLE MORTGAGE ISSUES WITH THE US GOVERNMENT

As part of the agreement, Deutsche Bank would pay a civil monetary penalty of $3.1 billion and provide $4.1 billion in consumer relief, such as loan forgiveness. The bank cautioned that there is “no assurance” the two sides will agree on the final documents.

A spokesman for the justice department declined to comment on the bank’s announcement.

The justice department is pursuing mortgage allegations against other lenders as well.

Credit Suisse on Friday said it had reached a deal with US authorities to pay $5.3 billion to settle disputes over the sale of mortgage-backed securities. Royal Bank of Scotland Group, Wells Fargo & Co, UBS Group AG and HSBC are also under investigation, according to disclosures.