Deutsche Bank and Allstate Settle Mortgage Securities Suit

Deutsche Bank and Allstate Corp have settled a suit brought by the US insurer that accused the bank of misrepresentations and omissions in connection with loans backing US$185m in mortgage securities.

Allstate sued Deutsche Bank in New York State Supreme Court in Manhattan in February 2011 on claims of fraud and negligent misrepresentation, saying the bank knew the securities were “toxic mixes of loans extended to borrowers who could not afford the properties”. The parties have now settled the case, according to a court filing last week.

Allstate, based in Northbrook, Illinois, filed similar suits in the same court against Bank of America’s Merrill Lynch unit, Citigroup, Goldman Sachs and Morgan Stanley.

In March this year Justice Eileen Bransten rejected bids by Deutsche Bank, Merrill Lynch and Morgan Stanley to dismiss Allstate’s suits. The insurer settled its case against Citigroup in May, and dropped its suit against Goldman Sachs in August.

Pools of home loans securitised into bonds were a central part of the housing bubble that helped push the US economy into recession. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.

Deutsche Bank has agreed to pay €1.4bn to settle claims that it failed to provide adequate disclosure about mortgage-backed securities sold to the US Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, aka Fannie Mae and Freddie Mac.

The agreement with the Federal Housing Finance Agency (FHFA) covering the period 2005 to 2007 resolves Deutsche Bank’s largest mortgage-related litigation case, the company said in a statement on its website.

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