Deutsche Bank AG reached a final settlement with the U.S. Justice Department over its handling of mortgage-backed securities before 2008, resolving one of its biggest litigation risks.
The bank agreed to pay $7.2 billion and admitted to misleading investors, the Justice Department said on Tuesday. The penalty was in line with the bank's Dec. 23 announcement that it had reached an agreement in principle in the matter. It will pay a $3.1 billion civil penalty and provide $4.1 billion in relief to homeowners.
"This resolution holds Deutsche Bank accountable for its illegal conduct and irresponsible lending practices, which caused serious and lasting damage to investors and the American public," Attorney General Loretta Lynch said in a written statement. "Deutsche Bank did not merely mislead investors: It contributed directly to an international financial crisis."
The final settlement caps a negotiation process that had sent the company's shares to a record low in September, when Deutsche Bank said the Justice Department had made an opening request of $14 billion to settle. The news spurred concern that the bank might not have enough capital.
Deutsche Bank's American depositary receipts declined about 3 percent to $18.61 at 3:11 p.m. in New York on Tuesday.
"Our conduct in this matter, which occurred from 2005 to 2007, falls short of our standards and is unacceptable," Deutsche Bank Chief Executive Officer John Cryan said. "We apologize unreservedly for it. We have subsequently exited many of the underlying activities and comprehensively improved our standards. As we enter 2017, we are pleased to have resolved this matter."
Mid-Range Penalty
The penalty against Deutsche Bank was in the midrange of mortgage-related settlements by big banks stemming from the financial crisis. Over the last few years, Bank of America Corp. agreed to pay $16.7 billion; JPMorgan Chase & Co., $13 billion; Citigroup, $7 billion; Goldman Sachs Inc., $5.1 billion; and Morgan Stanley, $3.2 billion.
Deutsche Bank, Germany's biggest bank, continues to defend itself from other U.S. probes and potentially expensive civil suits — liabilities that Cryan has set out to resolve as he seeks to restore confidence. The bank declared a hit of $1.2 billion from the Justice Department settlement to fourth-quarter pretax profit on Dec. 23.
