Credit Suisse and Deutsche Bank have been hit with a combined penalty
of more than $12 billion over the sale of U.S. 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 U.S.
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 U.S. authorities and the penalty
is likely to push it to a second consecutive annual loss.
payment, to settle claims it misled investors when selling
mortgage-backed 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.
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.
think the fines are reasonable and represent a positive for the system,"
said Alberto Gallo, head of global macro strategies at hedge fund
The penalties put the two European banks at a
further disadvantage to larger U.S. rivals, many of whom have already
absorbed their own fines for such wrongdoing and have strong capital
U.S. banks earlier paid $46 billion in such penalties.