Economy - - Dec 23,2016
Germany's Deutsche Bank has agreed to a $7.2bn settlement with the US authorities over its sale and pooling of toxic mortgage securities before the 2008 financial crisis.
The US Department of Justice had asked Deutsche Bank to pay $14 billion in September to settle the claims, but the agreement has been done on almost half of the proposed amount as experts had raised concerns that such a looming fine could pose a risk to the global financial system. The sum, however, needs a final approval.
As per the settlement, Deutsche Bank will pay a civil monetary penalty of $3.1 billion and provide $4.1 billion as consumer relief in the United States. This is the Justice Department's first settlement with a European bank over misconduct that led to the U.S. housing market collapse, which was a major contributor for fueling the 2008 financial crisis.
Deutsche Bank also expects to record a pretax charge of about $1.17 billion in the 4th quarter on the grounds of its civil monetary policy.
Several other banks in the US are under investigation over allegations of giving mortgages to unqualified borrowers, then labeling these loans as safe investments and selling the risk on to the others. The probes are related to the deals done between 2005 and 2007. Citigroup Bank has also been ordered to pay fines by the Department of Justice of $7 billion; a penalty reduced from earlier proposed $12 billion.
In 2013, JPMorgan Chase was fined $13 billion over allegations of overstating the quality of mortgages being sold to investors. Then in 2014, Bank of America also paid $16.7 billion for the settlement of similar allegations. In January this year, Goldman Sachs settled after paying $5.1 billion.
This week, the Department of Justice has also sued Barclays on charges of fraud, over the sale of mortgage-backed securities pertaining to the 2008 financial crisis.