Deutsche Bank has agreed to a $7.2 billion settlement with the Department of Justice.
Deutsche Bank, a German global financial services company catering to corporate and institutional clients, as well as private and business clients and headquartered in Frankfurt, has agreed to a $7.2 billion bank settlement with the Department of Justice for issuing harmful mortgage backed securities lending to the market’s recession. Deutsche Bank’s core business is investment banking, which represents 50% of equity, 75% of leverage assets and 50% of the company’s profits.
This marks the end of months of negotiations that impacted the company’s stock price, dropping it by half, and overall reputation in the banking industry. Investors have long feared the bank’s trade driven business model and insufficient funding. The pending election of president Donald Trump helped raise Deutsche’s stock value somewhat, but its troubles ensued.
Although Deutsche Bank was not alone in the massive scandal that perpetuated the international financial crisis, the bank settlement is the largest sought by the Department to date, and includes a $3.1 billion civil penalty. The other $4.1 billion provides aids to the homeowners “underwater, distressed borrowers and affected communities.” This portion will help primarily with assisting homeowners who wish to make loan modifications.
The decision marks the largest penalty ever issued under the Financial Institutions Reform, Recovery Enforcement Act, although it represents only half of the $14 billion the government had initially sought from Deutsche. Other banks brought to question over the years include JP Morgan, Bank of America, Credit Suisse and Citigroup, to name a few. Citigroup’s penalties were just under Deutsche’s at $7 billion, which it was ordered to pay three years ago. All together, the banks who have undergone toxic mortgage litigation have been forced into paying out tens of billions of dollars.
Attorney General Loretta Lynch claims that the actions of Deutsche Bank not only misled its investors, but directly affected the market in 2008. She submitted in a statement, “This resolution holds Deutsche Bank accountable for its illegal conduct and irresponsible lending practices, which cased serious and lasting damage to investors and the American public.”
The bank’s CEO John Cryan, in his position since July 2015, agrees, stating in a public apology, “Our conduct…falls short of our standard and is unacceptable.” Deutsche has levied greater than $60 billion in fines related to bad mortgages issued. Cryan has indicated that going forward he hopes to modify Deutsche’s model to be less of a ‘flow monster’ with regard to securities trading and more tech savvy, responding to specific client demands. Coinciding with this effort, the bank has already cut ties with over 3,000 of its trading clients, a move that has completely turned its original model upside down.
Details of the bank settlement agreement were first released back in December 2016, but the agreement has officially closed as of Tuesday of this week. There has some talk that the Bank and the Department may not agree on all of the content found in the final documentation, so additional modifications may need to be made.