Germany's Deutsche Bank announced it has agreed a US$7.2bn payment to US authorities over an investigation into mortgage-backed securities. The sum, which needs final approval, is far lower than the US$14bn the US had asked the bank to pay in September. The looming fine had caused concerns that a failure of the bank could pose a risk to the global financial system.
Credit Suisse also announced a similar deal, while Barclays is now under investigation too. The sale of residential mortgage-backed securities played a significant role in the 2008 financial crisis.
Several banks in the US have been subject to investigations over allegations of giving mortgages to unqualified borrowers, then repackaging those loans as safe investments and selling the risk on to others. The inquiries related to deals done between 2005 and 2007.
Meanwhile, Credit Suisse has said it has agreed a US$5.28bn deal to settle its own dispute with US authorities over mortgage-backed securities. The Swiss bank will pay US authorities US$2.48bn, and will also give consumers US$2.8bn in compensation over the next five years.
At the same time, the US Department of Justice has said it is now also suing Braclays for alleged mortgage securities fraud. It alleged that from 2005 to 2007, Barclays repeatedly misrepresented the characteristics of the loans backing securities they sold to investors throughout the world, who incurred billions of dollars in losses.
Deutsche Bank operates in 70 countries with 100,000 employees, but is shedding about 15% of its workforce, disposing of its retail bank, Postbank, and pulling out of other countries. Its assets are about €1.6tn. HSBC, the biggest non-Chinese bank in the world, has assets 50% greater than that, but Deutsche is still in, or near, the top 10 biggest global banks.
Under the settlement, Deutsche's payment will be made up of a civil penalty of US$3.1bn, as well as US$4.1bn in consumer relief, delivered over a period of five years, that will help US homeowners.
Other banks that have been ordered to pay fines by the US Department of Justice include Citigroup, which says its US$12bn penalty has been reduced to US$7bn. In 2013, JP Morgan Chase was fined US$13bn, following allegations that it overstated the quality of mortgages being sold to investors. In the following year, Bank of America paid US$16.7bn to settle similar charges. Goldman Sachs settled for US$5.1bn in January this year.