Deutsche Bank has announced that it has reached a settlement with the United States Department of Justice in regard to an investigation regarding residential mortgage-backed securities (RMBS) and securitization activities between 2005 and 2007.
Terms of the settlement agreement state that Germany’s largest bank will pay a total of $7.2 billion: a civil monetary penalty of $3.1 billion and $4.1 billion to provide consumer relief in the United States. Consumer relief will be compensated and delivered in the form of loan modifications and other assistance to homeowners and borrowers over a five-year period.
Deutsche Bank is expected to record pre-tax charges of approximately $1.17 billion in the financial results for Q4 as a result of the civil monetary penalty. The financial consequences, if any, of the consumer relief are subject to the final terms of the settlement, and are not expected to have an impact on the bank’s 2016 financial results. The preliminary results for the 2016 financial year are slated to publish on February 2, 2017.
The bank has faced multiple settlements over the years relating to violations of U.S. sanctions, rigging of interest-rate benchmarks, and allegations that it defrauded mortgage issuers Fannie Mae and Freddie Mac. According to a Bloomberg article, the bank has paid over $9.3 billion in fines and legal settlements since 2008.
In July, DS News reported that U.S. District Judge Deborah Batts rejected Deutsche Bank AG’s bid to dismiss claims with respect to roughly $2.55 billion of securities sold in November 2007 and February 2008, saying the German bank must face part of a lawsuit claiming it deceived investors who bought more than $5.4 billion of preferred securities by concealing its exposure to the fast-deteriorating subprime mortgage market, according to a report from Reuters.
Deutsche Bank Co-CEO John Cryan assured to employees that the bank plans to cover all legal costs in a note to the bank’s employees back in February. “I am personally investing time to resolve successfully and speedily open regulatory and legal cases. A small group of senior people, led by me, will focus on this," he said.
Deutsche Bank declined to comment about the settlement.