Deutsche Bank has announced a “tentative deal” with the US Department of Justice in the US over the sale of mortgage bonds ahead of the financial crash, says the New York Times.
The bank had been put on notice in October that US authorities wanted to hand down a penalty of as much as $14bn (£11bn), which would have cleaned out its financial reserves and forced it to raise new money or seek a government bailout.
It was seen as an existential crisis – and the bank’s shares nosedived to a record low below €10 (£8.53), around a tenth of their pre-crash peak.
But bosses always said the fine would be no more than around half that amount – and today they confirmed that by disclosing a settlement of $7.2bn (£5.8bn), comprising of a $3.1bn (£2.5bn) fine and $4.1bn (£3.35bn) to compensate consumers.
That’s still a lot of money, but the bank will probably not now be forced to raise new capital. It had already set aside around €5.5bn (£4.9bn) to cover on-going litigation.
“It could have been even worse for Deutsche Bank, but the punishment that has now been agreed… will put a heavy burden on the country’s biggest financial institution for years to come,” says Suddeutsche Zeitung, translated by the BBC.
Deutsche’s shares rose by 2.8 per cent, to above €18 (£15.34).
At the height of the boom banks made big profits by “packaging” huge volumes of mortgages, including those lent to borrowers with poor credit histories, and “selling them on to investors.
These bonds were priced on the basis that they were ultra-safe, but when the market turned in 2007 this theory was proved incorrect and the market crashed.
The Department of Justice has since recouped $48bn (£39bn) from a clutch of US banks – and alongside the Deutsche settlement it is also reported to have reached agreement with Credit Suisse worth $5.3bn (£4.3bn).
It is also reported this morning to be suing Barclays, which has refused to agree a settlement.
The New York Times says Deutsche has warned “there can be no assurance that the US Department of Justice and the bank will agree on the final documentation.”