Deutsche Bank, Credit Suisse agree billion-dollar settlements in U.S.

Agence France-Presse
(UPDATED) Deutsche Bank will pay a total of $7.2 billion, while Credit Suisse will pay almost $5.3 billion

SETTLEMENT. The headquarters of Germany's biggest lender Deutsche Bank is seen in Frankfurt am Main, western Germany, October 29, 2015. File photo by Daniel Roland/AFP

FRANKFURT AM MAIN, Germany (UPDATED) – Deutsche Bank and Credit Suisse said Friday, December 23, they had agreed with US authorities to pay billions of dollars to settle probes into the sales of toxic mortgage bonds that contributed to the 2008 financial crisis.

The German lender will pay a total of $7.2 billion – a $3.1-billion fine and $4.1 billion in relief to consumers – as part of the long-sought agreement in principle with US authorities, it said.

Shares in the German banking giant rose on the Frankfurt stock exchange on the heels of the announcement, which analysts said was a good outcome for now.

“With this settlement, CEO John Cryan has given himself and Deutsche Bank a Christmas present,” said analyst Ingo Frommen at LBBW bank.

In September, the US Department of Justice had sought an unaffordable $14-billion fine from Deutsche, sparking fears the bank could collapse and destabilize the global financial system.

Hours after the announcement Friday, Credit Suisse said it too had struck an agreement with US authorities to pay almost $5.3 billion to settle disputes over the sale of subprime mortgage bonds.

A day earlier, the DoJ said it was suing British financial giant Barclays, accusing the bank of massive fraud in the sale of mortgage-backed securities in the US.

The rash of announcements comes as the outgoing administration of President Barack Obama is racing to complete investigations into the Wall Street firms that created and sold the risky mortgage bonds that led to the worst crisis since the Great Depression.

Authorities have already taken more than $46 billion in fines from 6 US financial institutions over their dealings in mortgage-backed securities.

‘Relief’

Deutsche Bank’s chief executive Cryan had always insisted that the German lender would pay far less than the initial US demand.

And the bank brushed off fears the consumer relief element would have a significant impact on its results.

“The financial consequences, if any, of the consumer relief are subject to the final terms of the settlement, and are not currently expected to have a material impact on 2016 financial results,” the bank said.

Deutsche Bank’s share price plummeted in late September on news of the US fine demand to historic lows of 9.90 euros. 

Investors feared their stakes would be diluted if the lender – already struggling with a painful restructuring and a morass of legal entanglements around the world – was forced to raise fresh capital to cover the fine.

At around 1200 GMT Friday, its stock was trading 1.6% higher, at 18.04 euros.

“Although today’s settlement is not the end of the route, it has been a good short-term relief for investors, given that Deutsche Bank needn’t raise capital to cover for legal charges in the immediate future,” analyst Ipek Ozkardeskaya, of London Capital Group, said in a note to clients.

Further probes

However, the settlement does not resolve probes into whether the bank manipulated foreign-currency rates and precious metals prices, and allegations it facilitated transactions that helped investors illegally transfer billions of dollars out of Russia. 

Deutsche also faces civil lawsuits related to claims that its traders manipulated key interbank interest rates. It remains unclear how much it will cost the bank to wrap up these cases.

Barclays, Deutsche Bank, and Credit Suisse were among several major banks implicated in the global financial crisis, along with Royal Bank of Scotland.

Credit Suisse on Friday said that under its own agreement reached with the US, it would pay the DOJ a civil monetary penalty of $2.48 billion and provide consumer relief totalling $2.8 billion.

The deal still needs to be approved by the bank’s board, it added.

News of the settlements contrasted sharply with the DOJ’s surprise decision to sue Barclays in open court, after failing to come up with a mutually acceptable resolution.

“Barclays appears to be playing the long game, hoping it can get a better result in the courts,” said LCG analyst Jasper Lawler. – Rappler.com