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Deutsche Becomes 1st to Reach Settlement in Bond-Rig Probe

Zacks Equity Research

Deutsche Bank AG DB has agreed to pay $15 million in penalty to settle allegations that it has exploited its market presence by overcharging clients for unsecured bonds issued by Fannie Mae and Freddie Mac between Jan 1, 2009 and Jan 1, 2016.

The German lender is the first to settle among other global banks involved in the investigation. Though it did not admit any wrongdoing, Deutsche Bank received criminal leniency in antitrust matters by agreeing to provide information such as electronic chats and other key evidences that can be used to prove other banks guilty.

Notably, it had agreed to share information in May 2019. This made Deutsche Bank immune to prosecution and limited its exposure to financial penalty. However, the bank has been ordered to strengthen its antitrust compliance procedures and cooperate with investors.

Per the filings, the banks are said to have underwritten $3.97 trillion, or 77.2%, of Fannie Mae and Freddie Mac bonds in the seven-year period, of which Deutsche Bank had the fourth largest market share, following Barclays, JPMorgan Chase and UBS Group.

Last week, U.S. District Judge Jed Rakoff in Manhattan said that investors can sue Bank of America BAC, BNP Paribas SA, Deutsche Bank, Goldman Sachs GS and Morgan Stanley MS with antitrust claims.

Rakoff had said, "The chats unmistakably show traders, acting on behalf of those defendants, agreeing to fix prices at a specific level before bringing the bonds to the secondary market."

Our Take

Deutsche Bank’s decision to become the whistle blower kept its financials from taking a hard hit. Also, its restructuring efforts, including cost-saving measures, look encouraging. However, dismal revenue performance and horde of pending litigations remain concerns.

Shares of Deutsche Bank have lost 6.6% on the NYSE in the past six months compared with the industry’s decline of 7.7%.

 

The stock currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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