Deutsche Bank to pay $7.2 billion in subprime mortgage probe settlement
Two big European banks will give billions of dollars in loan relief to U.S. borrowers to settle civil claims over risky securities that helped spark the 2008 financial crisis.
Deutsche Bank said Friday it has agreed on a $7.2-billion settlement with the U.S. Justice Department in connection with its dealings in issuing mortgage-backed bonds.
Under the deal, which isn’t yet final, Germany’s biggest bank agrees to pay $3.1 billion in fines and $4.1 billion in compensation through such measures as easing loan repayment terms for homeowners and borrowers.
Credit Suisse said it had agreed to a similar settlement under which it would pay $5.3 billion.
The settlements, which focus on activities from 2005 through 2007, revisit an ugly chapter of the global financial crisis, in which banks bundled mortgages from people with shaky credit into bonds whose risks many investors did not understand. When the mortgages went into default as the U.S. real estate market collapsed, so did the bonds, spreading losses and panic through the financial system.
The Deutsche Bank agreement lessens the financial cloud over the bank’s shares; at one time, it had said it might have to pay as much as $14 billion. The bank has been struggling to put expensive litigation from past misconduct behind it. It said it would take a $1.17-billion hit to its fourth-quarter earnings from the civil penalty.
Chief Executive John Cryan is putting the bank through a tough restructuring in an attempt to improve profitability and strengthen its finances.
Deutsche Bank shares rose 3.7% to 18.42 euros ($19.25) in morning trading in Europe. Credit Suisse Group AG fell 0.4% to 15.27 Swiss francs ($14.88).
News of the settlements comes after the Justice Department sued Barclays Bank, accusing the bank and its employees of misrepresenting the quality of the loans they sold to tens of thousands of investors. The investors, which included credit unions, pension plans and university endowments, lost billions of dollars, the Justice Department said.
