Deutsche Bank agrees $7.2bn settlement with US in mortgages case

Deutsche Bank has announced it has agreed a $7.2 billion payment to the US justice department over an investigation related to the mis-selling of residential mortgage-backed securities and other activities between 2005 and 2007.

Under the settlement, Deutsche Bank would pay a civil monetary penalty of $3.1bn and provide $4.1bn in consumer relief in the US, such as loan forgiveness. The agreement was not final and there could be no assurance that the DoJ and the bank would agree on the final documentation, the bank said on Friday.

The sum is far lower than the $14 bn the US had asked Deutsche Bank to pay in September to settle the claims. That negotiating figure has caused the bank’s stocks to plummet and raised concerns about its stability and the risks a potential failure of the bank could pose to the global financial system.

The sale of residential mortgage-backed securities played a significant role in the 2008 financial crisis. Several US banks have been subject to investigations over allegations that they had given mortgages to unqualified borrowers, repackaged the loans as safe investments and sold the risk on to investors.

The settlement with Deutsche Bank marked the first in a possible string of mortgage-related resolutions or lawsuits by the DoJ for European banks. The DoJ on Thursday sued Barclays on charges of fraud in the sale of mortgage-backed securities in the run-up to the 2008 financial crisis. It alleges that from 2005 to 2007, Barclays had “repeatedly misrepresented the characteristics of the loans backing securities they sold to investors throughout the world, who incurred billions of dollars in losses”.

Elsewhere, Credit Suisse said it has agreed a $5.28bn deal to settle its on dispute with US authorities over mortgage-backed securities. The deal will see the Swiss bank pay the US authorities $2.48bn and consumers a separate $2.8bn in compensation over the next five years.