Deutsche Bank faces new blow as Justice Department demands record $14B
Deutsche Bank faces the prospect of having to tap shareholders for more cash after the U.S. Department of Justice asked Germany’s flagship lender to pay $14 billion to settle an investigation into alleged mis-selling of mortgage-backed securities. The record fine marks the latest blow to the bank, which has run a gauntlet of setbacks since the 2008 financial crisis. The Department of Justice move was only the first salvo in what could be a lengthy negotiation over the size of the fine, but it raised fears the final penalty will be far greater than expected. Deutsche Bank said on Friday it has “no intent” to settle the issue at “anywhere near the number cited.”
The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts.
Deutsche Bank is among many financial institutions investigated over dealings in shoddy mortgages in the run-up to the 2008 financial crisis. The government has accused the banks of misleading investors about the quality of their loans. Much of the underlying lending was worthless or fraudulent, delivering billions of dollars in losses to bond holders when the housing market collapsed, bringing down numerous banks and touching off the worst recession since the 1930s. Earlier this year, the Justice Department announced a roughly $5 billion settlement with Goldman Sachs over the sale of mortgage-backed securities. Other banks that settled in the last two years include Bank of America, Citigroup and JPMorgan Chase & Co. The sums paid by some of the nation’s largest banks are intended to offer financial relief to some homeowners. They have not included criminal sanctions or penalties.