Deutsche Bank reached a $7.2 billion settlement with the US Department of Justice over its sale and pooling of toxic mortgage securities in the run-up to the 2008 financial crisis. $3.1 billion will be paid as a civil penalty and $4.1 billion will be provided in relief to consumers under a settlement in principle with US authorities. The settlement was announced by Deutsche Bank’s Frankfurt headquarters early Friday morning.
As we can see on the chart which depicts the performance of Deutsche Bank stocks over the past 6 months, the settlement was anticipated by investors. The expected agreement was continuously being priced in and the stock price was rising over the period from September when the fine was revealed to public to December when the agreement was reached.
For Deutsche Bank, a major source of concerns has been cleared but some uncertainties remain. For instance, Deutsche Bank still faces investigations into the alleged manipulation of foreign exchange rates, suspicious equities trades in Russia, as well as alleged violations of US sanctions on Iran and other countries. Since 2012, Deutsche Bank has already paid more than €12 billion for litigation, including a deal with US mortgage-finance giants Fannie Mae and Freddie Mac.
In addition to Deutsche Bank, Credit Suisse reached an agreement with the US as well. According to Bloomberg, Credit Suisse will pay a $2.48 billion civil penalty and $2.8 billion in relief, to be paid over five years following the settlement. Unlike Deutsche Bank and Credit Suisse, Barclays was unable to reach an agreement and investors remain cautious.
There are other banks that remain under investigation over the role of their mortgage-backed securities business such as UBS, HSBC and Royal Bank of Scotland.