The Wall Street Journal has revealed that the US Justice Department has proposed that Deutsche Bank pays a US$14bn penalty to settle a series of investigation into the bank’s selling of mortgage-backed securities.
The proposed figure would exceed payments made by other banks to resolve similar claims and was well above the penalty expected by investors, resulting in a sharp fall in the German bank’s share price.
Deutsche Bank responded that it “has no intention to settle these potential civil claims anywhere near the figure 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,” it stated.
Several other banks have already been fined for their role in the sale of residential mortgage-backed securities, which were a major contribution to the 2008 financial crisis. Banks in the US have faced investigations into allegations that they provided mortgages to unqualified borrowers, then repackaged the loans as safe investments and sold the risk on to investors.
The Justice Department sought US$12bn from Citigroup in 2014 for its part in the sale of the products, but the final agreed settlement was US $7bn.
In 2013, JP Morgan Chase was fined US$13bn to settle claims that it overstated the quality of mortgages being sold to investors. Bank of America paid US$16.7bn to settle similar charges the following year and Goldman Sachs settled for US$5.1bn in January 2016.
A report by the BBC quoted market analyst Neil Wilson of ETX Capital who commented that in the light of the proposed penalty to be levied on Deutsche Bank, “you have to wonder if financial regulators are starting to do more harm than good.
“Given the very precarious finances of some European banks, of which Deutsche is one of the riskiest and systemically important, it’s disturbing and appears myopic and needlessly punitive.
“True, the final sum is unlikely to be as high as the US$14bn claim, but somewhere around a third of that would seem par for the course. That would still represent a massive blow to a firm with a market cap of about €18bn.”
ExxonMobil is legally challenging a $2m fine from the US Treasury for allegedly violating sanctions against Russia in 2014 while US Secretary of State Rex Tillerson was still overseeing the company.
Morgan Stanley is moving staff to Frankfurt in time for the March 2019 Brexit deadline.
The US bank, which already has 350 employees based in the city, will transfer some trading activities currently undertaken in London and create a further 150 to 250 jobs according to reports.
BNP Paribas is the latest in a long line of financial service companies to be penalised for misconduct during the financial crisis on both sides of the Atlantic.