Deutsche Bank AG reached a final settlement with the U.S. Justice Department over its handling of mortgage-backed securities before 2008, resolving one of its biggest litigation risks.
The bank agreed to pay $7.2 billion and admitted to misleading investors, according to the Justice Department. The penalty was in line with the bank’s Dec. 23 announcement that it had reached an agreement in principle in the matter. It will pay a $3.1 billion civil penalty and provide $4.1 billion in relief to homeowners
“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, Germany’s biggest bank, continues to defend itself from other U.S. probes and potentially expensive civil suits -- liabilities that Chief Executive Officer John Cryan has set out to resolve as he seeks to restore confidence. The bank declared a hit of $1.2 billion from the Justice Department settlement to fourth-quarter pretax profit on Dec. 23, saying at the time that “negotiation of definitive documentation” was still being finalized.
The bank still faces investigations into whether it manipulated foreign-currency rates and precious metals prices and whether it facilitated transactions that helped investors illegally transfer billions of dollars out of Russia. In a memo to employees in December, the lender said it found “deficiencies” in the bank’s systems and controls in Russia, but no indications that it breached sanctions in the country.
And on Tuesday, the U.S. Supreme Court refused to stop antitrust lawsuits that accuse some of the world’s biggest banks, including Deutsche Bank, of conspiring to rig the London Interbank Offered Rate, known as Libor. The court rejected the banks’ appeal without explanation, leaving them vulnerable to the prospect of paying out billions of dollars in damages if the suits succeed.
Deutsche Bank had set aside 5.9 billion euros ($6.3 billion) for all of its outstanding legal costs as of Sept. 30, about 2 billion euros of which it used for the settlement with the U.S. Its common equity tier 1 ratio, a key metric of financial strength, stood at 11.1 percent, below the target level of at least 12.5 percent for 2018.
The final settlement caps a negotiation process that had sent the company’s shares to a record low in September, when Deutsche Bank said the Justice Department had made an opening request of $14 billion to settle. The news spurred concern that the bank might not have enough capital.
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