Deutsche Bank won't pay $19b

The US Justice Department sought US$14 billion to settle an investigation into Deutsche Bank's sale of residential mortgage-backed securities.
The US Justice Department sought US$14 billion to settle an investigation into Deutsche Bank's sale of residential mortgage-backed securities.PHOTO: REUTERS

NEW YORK • Deutsche Bank said it will not pay the US$14 billion (S$19.1 billion) sought by the United States Justice Department to settle an investigation into the firm's sale of residential mortgage- backed securities, a figure that's more than triple what some analysts estimated could be a potential worst-case.

"Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited," the company said in a statement yesterday. "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."

Germany's largest lender confirmed it had started negotiations with the Justice Department to settle civil claims the US may consider over the bank's issuing and underwriting of residential mortgage-backed securities from 2005 to 2007.

The US$14 billion is considered an "opening bid" that could go "much lower", according to the Wall Street Journal, which reported the figure shortly before Deutsche Bank issued its statement.

US shares of Deutsche Bank tumbled 6.5 per cent to US$13.80 in extended trading at 7.03pm in New York. Its stock has plunged 42 per cent this year in Germany as of the close of trading on Thursday.

Deutsche Bank chief executive officer John Cryan, 55, has struggled to boost profits as unresolved legal probes and claims compound concerns that the lender will be forced to raise capital or sell assets. Reaching a mortgage deal would clear a major hurdle for the bank, which has paid more than US$9 billion in fines and settlements since the start of 2008.

Said Dr Tony Plath, a finance professor at the University of North Carolina: "In defence of protecting its shareholders' money, Mr Cryan is well within his rights in negotiating a more equitable and just settlement with the US government, and calling this one a punishment that's several orders of magnitude greater than the crime."

Dr Plath expects a final settlement of about US$4 billion to US$5 billion.

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A version of this article appeared in the print edition of The Straits Times on September 17, 2016, with the headline 'Deutsche Bank won't pay $19b'. Print Edition | Subscribe