Deutsche Bank To Pay $7.2 Million To Settle With US Government
Friday will be settlement day in the United States, as both Deutsche Bank and Credit Suisse are releasing details of their settlements with the US government.
The settlements are in relation to the investigations of Wall Street firms regarding their creation and selling of subprime mortgage bonds roughly a decade ago. These subprime mortgage bonds helped to fuel the 2008 financial crisis that came very close to toppling the US economy.
Prior to Friday's two settlements, the US government had managed to extract over $46 billion from six institutions that were involved in the selling of mortgage-backed securities. This included a massive $16.7 billion settlement between Bank of America and the US government.
The settlements by Deutsche Bank and Credit Suisse aren't quite that big, but they will still have a sizeable impact on the two businesses moving forward.
Deutsche Bank inked a $7.2 billion settlement with the government that includes a $3.1 billion penalty and $4.1 billion in US consumer relief (primarily in the form of loan modifications and other assistance to homeowners).
Credit Suisse, on the other hand, will have to pay out $5.28 billion - a $2.48 billion civil penalty, plus $2.8 billion in relief to homeowners and communities.
Deutsche Bank shareholders have been nervously awaiting the announcement of this settlement, as it was an albatross that was hung around the neck of the company.
The US government had originally wanted $14 billion, though Deutsche Bank was able to negotiate this down to roughly half the amount.
The market may not like the fact that the settlement was larger than what many people thought the bank would have to pay, though there will also likely be some relief now that the situation has been resolved. It will be interesting to see how Deutsche Bank trades in the last session before Christmas.
A number of financial institutions have still yet to agree to settlements with the US government.
Source: Bloomberg.com - Credit Suisse to Pay $5.3 Billion in US Mortgage Accord
Filed under: General Knowledge