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US Department of Justice to Germany's Deutsche Bank: Pay $14 Billion in Penalty

By September 18, 2016 at 8:52 pm
US Department of Justice to Germany's Deutsche Bank: Pay for $14 Billion in Penalty (Photo : Krisztian Bocsi Getty Images)

The US Department of Justice is demanding Germany's Deutsche Bank to pay $14 billion dollars to settle an investigation inits involvement in mortgage-backed securities back in 2008 BBC reported.

Deutsche Bank rebutted the claims of the Department of Justice stating in a released statement that "has no intention to settle these potential civil claims anywhere near the figure cited."

BBC opines that the gargantuan fine claimed against Deutsche would most likely be subjected to negotiations over several months because the bank thought the fine was much bigger than it expected.

The Deutsche Bank's stock price fell by nearly 7% during the first hours of trading.

"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 said.

The sale of residential mortgage-backed securities played a key role in the 2008 financial crisis which scholars claim was the straw that broke the global financial sector's back.

Banks in the US has been subject to many investigations over allegations of giving mortgages to unqualified borrowers, then repackaging the loans given to them as safe investments and selling the risk on to others which in turn passes on the risk of holding the toxic asset.

BBC believes that the $14 billion dollar fine facing Deutsche Bank is one of the largest penalties handed out by US authorities in the aftermath of the financial crisis.

The Department of Justice sought $12 billion from Citigroup in 2014 for the sale of mortgage-backed financial products but the bank in the end only paid $7 billion.

In 2013, JP Morgan Chase was fined $13 billion following allegations it overstated the quality of mortgages being sold to investors and in the following year, Bank of America paid $16.7 billion to settle similar charges. Goldman Sachs on the other hand settled for $5.1 billion in January this year.

The fine has emerged at a difficult time for Deutsche Bank. Its most recent results revealed a 20% fall in second quarter revenues and a 67% drop in profits.

In July, one of Deutsche Bank's US operations failed a stress test by the Federal Reserve, which it criticized for having "broad and substantial weaknesses" in capital planning and for making insufficient progress on previous year.

Neil Wilson at ETX Capital said that given the potential size of the settlement, "you have to wonder if financial regulators are starting to do more harm than good. Given the very precarious finances of some European banks, of which Deutsche is one of the riskiest and systemically important, it's disturbing and appears myopic and needlessly punitive."

Wilson further said that "True, the final sum is unlikely to be as high as the $14bn claim, but somewhere around a third of that would seem par for the course. That would still represent a massive blow to a firm with a market cap of about €18bn."

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