John Cryan, CEO, Deutsche Bank
Zurich: Deutsche Bank AG said it reached a $7.2bn agreement to resolve a years-long US investigation into its dealings in mortgage-backed securities, removing a legal hurdle that fuelled investor angst.
Deutsche Bank will pay a $3.1bn civil penalty and provide $4.1bn in relief to consumers under a settlement in principle with US authorities, according to a statement early yesterday. The fine will cut pretax profit by $1.2bn this quarter as the firm taps existing legal reserves to blunt much of that cost.
The settlement “might help in the short run because a major source of uncertainty has been cleared,” said Michael Huenseler, an investor at Assenagon Asset Management, which holds about 0.8 percent of Deutsche Bank’s shares. “But it’s still higher than many have expected and it will pose a long-term drag on profitability.” The deal is far below the Justice Department’s initial request of $14bn, which had spooked stock and bond holders earlier this year, rattling entire markets.
Credit Suisse Group AG just hours later announced that it had settled a related probe with the DoJ for $5.28bn. The Obama administration is pressing to wrap up investigations of Wall Street firms for creating and selling the sub-prime mortgage bonds that fueled the 2008 financial crisis. Deutsche Bank rose 4.5 percent at 9:04 am in Frankfurt trading, paring losses this year to 18 percent. Credit Suisse gained 2 percent in Zurich.
The Swiss lender will pay a $2.48bn civil penalty and $2.8bn in relief for homeowners and communities hit by the collapse in home prices. The bank will take a pretax charge of about $2bn in addition to its existing reserves during the fourth quarter. Germany’s biggest bank still faces US probes into other matters and potentially expensive civil suits - liabilities that Chief Executive Officer John Cryan has set out to resolve as he seeks to restore confidence.
Deutsche Bank had set aside €5.9bn ($6.2bn) for all of its outstanding legal costs as of September 30, when its common equity Tier 1 ratio stood at 11.1 percent.
