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Deutsche Bank finalizes $7.2bn deal with US authorities to settle mortgage probes

Published 18 January 2017

German banking giant Deutsche Bank has finalized a $7.2bn deal with the US Department of Justice to end several probes related to the firm’s sale of mortgage-backed securities.

Under the terms of the agreement, the bank will pay a civil monetary penalty of $3.1bn and to provide $4.1bn in consumer relief in the US.

The Department stated: “This $7.2 billion agreement represents the single largest RMBS resolution for the conduct of a single entity.”

The bank described in a statement that it knowingly made false and misleading representations to investors about the characteristics of the mortgage loans it securitized in residential mortgage-backed securities (RMBS) worth billions of dollars issued by the bank between 2006 and 2007.

According to the statement, it concealed from investors that significant numbers of borrowers had second liens on their properties. 

By May 2007, the lender knew that there was a rising trend of overvalued properties being sold to Deutsche Bank for securitization.

The department said that an independent monitor will oversee the bank’s provision of consumer relief and it will have authority to approve the selection of any third party used by Deutsche Bank for the purpose.

Deutsche Bank CEO John Cryan said: “Although it is good that we can bring this matter to a close, the price we are paying is high. The DoJ is highly critical of these transactions.

“The conduct they cite, which occurred from 2005 to 2007, falls short of our standards and is unacceptable. We apologize unreservedly for it.”

Cryan said that the settlement with the US authorities is also a financial burden for us.

The bank expects the civil monetary penalty to have a negative impact on its pretax result of nearly $1.2bn in the fourth quarter of 2016.

Image: Deutsche Bank in Beijing - China. Photo coutesy of Deutsche Bank.