Summary: Deutsche Bank is the latest bank to enter into negotiations with the Department of Justice over their part in selling mortgage-backed securities.
The U.S. Department of Justice ordered Deutsche Bank to pay $14 billion in order to settle the claims that they mishandled mortgage-backed securities. The shocking amount that the DoJ is ordering Deutsche Bank to pay could have severe effects on the German company’s future. They were expecting a figure closer to $3.4 billion.
Read Deutsche Bank Changing General Counsel.
The bank slipped through the July European stress tests and emphasizes that they may need more cuts in order to make it through the coming months. Revenue keeps dropping in part to the current state of the market and low interest rates. These are all challenges that new Chief Executive John Cryan has to continue to face.
The bank’s shares have lost half their value this year, dropping from 7.6 percent to 12.10 euros. The cost of insuring the bank’s debts against default jumped to about 8 percent. Experts suggest the bank needs to find ways to raise fresh money from investors or to sell assets in order to bring their capital ratios back up.
Deutsche Bank employs roughly 100,000 people, which would be quite the upset to the economy if they should go under. The bank stated, “Deutsche Bank has no intent to settle these potential civil claims 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.”
See Deutsche Bank Paying for Their Role in the Financial Crisis.
Their fight could be tough as agencies are cracking down on companies and no longer giving them breaks. The European Union placed a steep bill on Apple of $13 billion euros to be paid for tax breaks the American company received from the Irish government. The DoJ asked Citigroup to pay $12 billion for their part in bad mortgage-backed securities but settled on a $7 billion fine. Goldman Sachs also ended up with a $5.06 billion fine to settle claims for their part in the financial crisis.
It is expected that Deutsche Bank will end up paying anywhere from $4 to $7 billion euros. The bank has already settled other claims such as $1.9 billion for defrauding Fannie May and Freddie Mac.
Do you think these banks should be paying bigger fines for their roles in the financial crisis? Tell us your thoughts in the comments below.
To learn more about Apple’s case in Ireland, read Ireland Must Recover $14.6 Billion from Apple.
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