The US Department of Justice is claiming $14 billion from Deutsche Bank in an investigation into mortgage-backed securities.
US Asks Deutsche Bank to Pay $14bn in 2008 Mortgage Crisis Case
Deutsche Bank has however said that it does not have intentions to settle this case anywhere near the cited figures.
The claim against the bank is certainly much larger than was anticipated and will likely be subjected to negotiations for a couple of months.
Following these news, Deutsche shares fell by close to 7% in early trading.
In a statement, Deutsche Bank said, “The negotiation are just beginning and it is expected they will lead to a much lower settlement as has been the case with other banks.”
Residential mortgage-backed securities were at the heart of the 2008 financial crisis.
In the US, banks have been put through several investigations as they have been accused of offering mortgages to borrowers who did not qualify for these loans and then repackaging these mortgages as safe investments and selling them to others.
The claim against Deutsche Bank is one the largest demanded by US authorities following the financial crisis.
In 2014, the Department of Justice asked for $12 billion from Citigroup for selling mortgage-backed financial products. However, the bank paid just $7 billion in the end.
In 2014, JP Morgan Chase faced a $13 billion fine resulting from allegations that it exaggerated the quality of mortgages sold to investors and in 2015, Bank of America was fined $16.7 billion while at the start of this year Goldman Sachs paid $5.1 billion in settlement.
The claim against Deutsche Bank has come at a difficult time when the company just announced a 20% decline in second quarter revenues and a 67% decline in profits.
As recently as July, Deutsche operations in the US failed a stress test administered by the Federal Reserve. The Fed pointed that the bank’s operations demonstrated substantial and broad weaknesses especially in capital planning.
Neil Wilson of ETX Capital noted that one would have to wonder if financial regulators are aggravating the situation with such large settlement demands.
He said, “Given the increasingly precarious finances of some banks in Europe, of which Deutsche is among the riskiest yet still important, it is alarming and seems myopic and needlessly punitive.”