Deutsche Bank has reached a final settlement with the US Department of Justice (DOJ) to resolve litigation related to its sales of mortgage-backed securities before the 2008 financial crisis.
The bank has agreed to pay a total of US$7.2bn and admitted to misleading investors the DOJ announced, comprising a US$3.1bn civil penalty plus US$4.1bn in relief to homeowners. Deutsche Bank had indicated last month that it had reached an agreement in principle, relieving investors who sold the bank’s shares last September when a penalty as high as US$14bn had been suggested.
“This resolution holds Deutsche Bank accountable for its illegal conduct and irresponsible lending practices, which caused serious and lasting damage to investors and the American public,” Attorney General Loretta Lynch said in a written statement.
“Deutsche Bank did not merely mislead investors: It contributed directly to an international financial crisis.”
Deutsche Bank admitted to making false representations and omitting material information from disclosures to investors about the loans included in residential mortgage-backed securities that it sold. “Our conduct in this matter, which occurred from 2005 to 2007, falls short of our standards and is unacceptable,” said its chief executive officer (CEO) John Cryan.
“We apologise unreservedly for it. We have subsequently exited many of the underlying activities and comprehensively improved our standards. As we enter 2017, we are pleased to have resolved this matter.”
Deutsche Bank still faces separate investigations into whether it manipulated foreign currency rates and precious metals prices and whether it facilitated transactions that helped investors illegally transfer dollars out of Russia.
The DOJ imposed fines totalling US$46bn on US banks for their role in misleading investors when selling mortgage-backed securities, including US$16.7bn on Bank of America, which also covered Merrill Lynch and Countrywide Financial. And US$13bn on JPMorgan Chase, including misconduct by Washington Mutual and Bear Stearns. Other penalties included Citigroup (US$7bn) Goldman Sachs (US$5.1bn) and Morgan Stanley (US$3.2bn).
It then turned its attention to Deutsche and other European banks. Credit Suisse announced that it had agreed in principle to a US$5.3bn settlement. Last month the DOJ sued Barclays and two former executives on civil charges of fraud in the sale of mortgage-backed securities before 2008.
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.