24 December, 2016
In the span of just 12 hours, three USA enforcement matters left over from the financial crisis made significant progress: Deutsche Bank AG and Credit Suisse Group AG separately announced that they would pay a combined $12.5 billion to resolve US investigations into their sales of toxic mortgage debt, whereas Barclays Plc chose to roll the dice and let the Justice Department file a fraud lawsuit over its debt sales.
Two giants, Deutsche Bank and Credit Suisse, have agreed to multi-billion dollar settlements with the US Department of Justice, often abbreviated as the DoJ, over a decade-old toxic bond misselling scandal.
The Deutsche Bank agreement lessens the financial cloud over the bank's shares, since it had earlier this year said it might have to pay as much as $14 billion. Germany's largest bank had been accused of misselling mortgage-backed securities (MBS), and recently, they settled their case with the Department of Justice.
The DoJ did not comment on the announcements by Deutsche and Credit Suisse but as it filed legal papers against Barclays, Lynch said: "Financial institutions like Barclays occupy a position of vital public trust".
The Deutsche deal caps a turbulent few months for the German bank, which saw its share price drop to a record low in September after it emerged the department of justice had made a $14 billion claim.
Deutsche Bank still faces other inquiries that could prove hard for the new administration, including allegations that it helped launder money for wealthy Russian clients. Germany's biggest bank had agreed "in principle" to pay a $3.1 billion civil penalty and also provide $4.1 billion in relief to consumers, over time.
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Neither Deutsche nor Credit Suisse, which agreed to a similar settlement under which it would pay $5.3 billion, including $2.8 billion in consumer relief, provided details on what the consumer compensation would entail.
The settlement can be marked as a win for the German shareholders as DoJ earlier sought $14 billion; back then it seemed hard to negotiate the amount down.
The penalties put the two European banks at a further disadvantage to larger USA rivals, many of whom have already absorbed their own fines for such wrongdoing and have strong capital cushions.
The scandal dates back to 2005 and 2007, when banks packaged up home loans and sold them on to investors.
Barclays said on Friday that it rejected the complaint, would "vigorously defend" the case and sought its dismissal "at the earliest opportunity". The bank will take a related pre-tax charge of approximately $2 billion in the fourth quarter. Last year, United States market regulators fined the German lender $55 million, concluding that it had overvalued its holdings of credit derivatives by at least $15 billion during the financial crisis.