Deutsche Bank agrees $7.2bn fine with USA government, shares rise

Cody PriceDec 24, 2016

The shaky European banking industry got a pre-Christmas boost Friday as Deutsche Bank and Credit Suisse announced they will pay a combined $12.5 billion to settle US investigations into their sales of toxic mortgage-backed securities.

The Deutsche Bank deal is far below the Justice Department's initial request of US$14 billion, which had spooked stock and bond holders earlier this year. Credit Suisse has agreed to pay $5.3bn.

The department sued Barclays PLC on Thursday over similar claims.

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The sale of residential mortgage-backed securities played a significant role in the 2008 financial crisis.

The Deutsche Bank settlement is likely to bring some relief for the German bank's shareholders, who earlier in the year anxious about a much bigger penalty.

Housing advocates however have complained that banks have claimed credit toward the settlement amounts for activities they would have undertaken anyway.

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Summary: Germany's largest bank has agreed to pay the federal government billions of dollars to settle a misselling case.

"Other banks that have been ordered to pay fines by the DOJ include Citigroup, which says its $12 billion penalty has been reduced to $7 billion", the BBC continues. To date, large lenders in the United States and Europe have agreed to fork over almost $50 billion in fines and consumer relief to the USA government to settle claims of wrongdoing. The bank will take a pretax charge of about $2 billion in addition to its existing reserves during the fourth quarter. It has been divided into a $3.1 billion penalty along with a $4.1 billion pledge to a consumer relief fund, which will be distributed by the government. Because the Justice Department hasn't commented, we don't know what non-financial terms are contained in the agreement or what behavior, if any, the banks will admit to.

American banks have paid tens of billions of dollars over the past three years to settle with USA authorities over misleading investors about the quality of mortgages underlying securities.

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Credit Suisse, known more for its sprawling wealth management operations, will pay a smaller figure than Deutsche Bank. Credit Suisse shares flat implies an acceptable deal,"Mike van Dulken, an analyst at Accendo Markets, said in an emailed statement on Friday".

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