Deutsche Bank shares plunged on Friday after the German bank said the Department of Justice is seeking a $14 billion fine to settle its mortgage lending activities during the 2000s housing bubble. The potential fine far exceeds previous media reports and may raise new investor worries about the lender’s financial health.
A sharply worded statement from Deutsche Bank outlining the DoJ’s demands also indicates significant distance before a settlement emerges. The German banking conglomerate said in its statement it believed a $14 billion fine was far too high relative to fines other lenders have paid to settle their crisis-era mortgage lending activities.
Here’s what the bank said:
Deutsche Bank AG confirms that it has commenced negotiations with the Department of Justice in the United States with a view to seeking to settle civil claims that the DoJ may consider in connection with the bank’s issuance and underwriting of residential mortgage-backed securities (RMBS) and related securitization activities between 2005 and 2007,” the bank said
The bank confirms market speculation of an opening position by the DoJ of USD 14 billion and that the DoJ has invited the bank as the next step to submit a counter proposal.
Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited. The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts.
That statement sent Deutsche Bank shares lower by nearly 10% in Friday trading.
It also caused shares in European banking giants to fall sharply. Royal Bank of Scotland and Barclays both fell over 5%, while Credit Suisse and UBS fell over 3%. French lenders BNP Paripas and Societe Generale both fell over 2%.
Many U.S. lenders have settled with the DoJ over their mortgage lending activities during the crisis.
Bank of America struck a $16.7 billion settlement, while JPMorgan Chase and Citigroup paid fines of $9 billion and $7 billion, respectively. Goldman Sachs and Morgan Stanley, two standalone investment banks that owned captive mortgage finance businesses to fuel their packaging of subprime mortgage securities, paid fines of $5.1 billion and $3.2 billion.