Deutsche, Credit Suisse settle US mortgage probes

ZURICH • Deutsche Bank and Credit Suisse Group have agreed to pay a combined US$12.5 billion (S$18 billion) to resolve United States investigations into sales of the toxic debt that fuelled the 2008 financial crisis, putting behind them a major dispute that had weighed on their shares and raised questions about their turnaround plans.

Deutsche Bank will pay US$7.2 billion and Credit Suisse agreed to a US$5.3 billion deal, the banks said in separate statements yesterday.

Their announcements came hours after Barclays , which is being probed in a related case, was sued for fraud on Thursday by the US Justice Department after it balked at paying the amount the government sought in negotiations.

The Obama administration is pressing to wrap up investigations of Wall Street firms for creating and selling the sub-prime mortgage bonds that fuelled the 2008 crisis.

  • SETTLEMENT SUMS

  • US$7.2b

    Amount that Deutsche Bank agreed to pay to resolve the US investigation into its dealings in mortgage-backed securities.

    US$5.3b

    Credit Suisse's deal

Authorities had already extracted more than US$46 billion from six US financial institutions over their dealings in mortgage-backed securities. Bank of America, which had the largest such settlement, agreed to pay US$16.7 billion over bonds that were worth four times those of Deutsche Bank.

"The settlements are reducing a major uncertainty for the banks," said Mr Raimund Saxinger, a fund manager at BHF Bank.

Deutsche Bank rose 3.1 per cent at 10.28 am in Frankfurt, paring losses this year to 19 per cent. Credit Suisse fell 0.3 per cent, after earlier gaining as much as 2.2 per cent. Barclays fell 0.9 per cent in London.

Deutsche Bank's settlement "might help in the short run because a major source of uncertainty has been cleared", said Mr Michael Huenseler, an investor at Assenagon Asset Management. "But it's still higher than many have expected and it will pose a long-term drag on profitability."

The settlement will probably spare the bank from having to raise capital, said Mr George Boubouras, the chief investment officer of Contango Asset Management.

The Deutsche Bank deal is far below the Justice Department's initial request of US$14 billion, which had spooked stock and bond holders earlier this year.

Germany's biggest bank still faces US probes into other matters and potentially expensive civil suits - liabilities that chief executive officer John Cryan has set out to resolve as he seeks to restore confidence.

Credit Suisse chief executive officer Tidjane Thiam tapped shareholders for six billion Swiss francs (S$8.5 billion) late last year while shifting the company's focus away from capital-heavy investment banking toward wealth management. Mr Thiam has updated investors twice on his plan, which includes a partial initial public offering of its Swiss unit late next year.

Barclays could not reach an agreement, marking the first time the Justice Department has sued one of the banks at the centre of a government initiative to recoup investor losses on mortgage securities.

At least three other European banks remain under investigation over their mortgage-backed securities business: UBS Group, HSBC Holdings and Royal Bank of Scotland Group.

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A version of this article appeared in the print edition of The Straits Times on December 24, 2016, with the headline 'Deutsche, Credit Suisse settle US mortgage probes'. Print Edition | Subscribe