U.S. wants $14 billion from Deutsche Bank, bank says no
Deutsche Bank To Fight US Justice Department’s $14 Billion Settlement Demand
Deutsche Bank has no intention of paying a $14 billion settlement fine issued by US authorities over claims it missold mortgage-backed securities, the bank said in a statement amid growing concerns over its future.
The US Justice Department has opened settlement negotiations with Germany’s largest bank over its role in selling residential mortgage-backed securities prior to the 2008 financial crisis. Deutsche Bank confirmed the settlement amount on Thursday, but indicated that it has “no intent” to pay “anywhere near the number cited,” the bank said.
On Friday, Deutsche Bank’s stock price plunged 8.5%, wiping out more than $1.1 billion in market value. By the end of the day, Germany’s DAX Index had lost 1.5%. Deutsche Bank’s shares have lost around half of their value this year. The bank barely passed European stress tests in July, raising concerns about its financial position.
The bank employs approximately 100,000 people.
Germany’s Finance Ministry commented on Friday it expects a “fair result” from the negotiations, but indicated it would not interfere with the talks. Finance minister Wolfgang Schaeuble had earlier voiced public support for the bank.
“The negotiations are only the beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts,” Deutsche Bank said.
According to analysts, even a fine at a fraction of that amount would threaten Deutsche Bank’s capital position. In 2014 the Justice Department ordered Citigroup to pay $12 billion to resolve a settlement related to its mortgage-backed securities business. The fine was eventually settled at $7 billion. This past April Goldman Sachs agreed to pay $5.06 billion to settle a claim that it misled bond investors.
Deutsche Bank’s attempt to negotiate a lower settlement will likely trigger several months of talks, which could further erode its share price. Analysts expect the bank to fork over anywhere between $4-$7 billion once the final settlement is reached.
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The claim against Deutsche, which is likely to be negotiated in several months of talks, far outstrips the bank's and investors' expectations for such costs.
While it is yet to become clear what the final payment will be, if it were to be as high as $14 billion, this would be a severe strain for Deutsche's fragile finances and would likely further rock investor confidence in the bank.
The bank's US-listed shares fell 8 percent in after-hours trading.
" Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited. The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts", Deutsche Bank said in a statement on Friday.
The Department of Justice declined to comment.
The Wall Street Journal earlier reported the department's demands.
The Department of Justice has taken a tough stance in settlement negotiations with other banks, requesting sums higher than the eventual fine.
In 2014, it asked Citigroup (N:C) to pay $12 billion to resolve an investigation into the sale of shoddy mortgage-backed securities, sources said. The fine eventually came in at $7 billion.
In a similar case, rival Goldman Sachs (N:GS) agreed in April to pay $5.06 billion to settle claims that it misled mortgage bond investors during the financial crisis.
That settlement included a $2.39 billion civil penalty, $1.8 billion in other relief, including funds for homeowners whose mortgages exceed the value of their property, and an $875 million payment to resolve claims by cooperative and home loan banks among others.
Deutsche Bank's settlement will comprise a different list of recipients, a source close to the matter said, adding that the lender had already settled some claims three years ago.
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