Removing considerable uncertainty about Deutsche’s capital position, one wonders how much this remarkably low-ball settlement had to do with Donald Trump’s current loan re-negotiations with the “world’s most systemically dangerous bank.”
As a reminder, the Wall Street Journal noted that DB’s attorneys had privately suggested that a $2 – $3 billion settlement with the DOJ was probably in the ballpark. Meanwhile, wall street analysts had estimated settlements in the $2-$5 billion range. Any fines paid pursuant to current negotiations would be in addition to the $1.9 billion already paid in 2013 to settle other U.S. claims related to mortgage-backed securities.
Per the table below, as of June 30, DB had reserved a total of €5.5 billion for civil litigation and regulatory penalties on it’s balance sheet.
And so this lower than expected penalty has sent US equity futures higher…
As Bloomberg reports, Deutsche Bank said it has reached a $7.2 billion agreement to resolve a years-long U.S. investigation into its dealings in mortgage-backed securities, removing a major legal hurdle for the bank.
Deutsche Bank will pay a $3.1 billion civil penalty and provide $4.1 billion in relief to consumers under a settlement in principle with U.S. authorities, which was announced by the Frankfurt-based bank in a statement early Friday. The deal compares with the Justice Department’s opening request of $14 billion, which the firm has said it expected to whittle down.
While the agreement removes significant uncertainty hanging over Deutsche Bank, Germany’s biggest lender remains under Justice Department investigation in several other matters and also faces potentially expensive civil suits. Chief Executive Officer John Cryan has made resolving major litigation a priority as he seeks to restore confidence in the Frankfurt-based lender.
The Obama administration is pressing to wrap up investigations of Wall Street firms for creating and selling the subprime mortgage bonds that fueled the 2008 financial crisis. Authorities have already extracted more than $46 billion in fines from six U.S. financial institutions over their dealings in mortgage-backed securities. Bank of America Corp., which had the largest such settlement, agreed to pay $16.7 billion over bonds that were worth four times what Deutsche Bank’s bonds were worth.
While Obama’s legacy played its part, no doubt; we just can’t help but wonder how much the fact that, as Bloomberg reports, the bank is trying to restructure some of Trump’s roughly $300 million debt as part of an attempt to reduce any conflict of interest between the loan and his presidency, according to a person familiar with the matter.
Normally, the removal of a personal pledge might lead to more-stringent terms. But there is little normal about this interaction. Trump’s attorney general will inherit an investigation of Deutsche Bank related to stock trades for rich clients in Russia — where Trump says he plans to improve relations — and may have to deal with a possible multibillion-dollar penalty to the bank related to mortgage-bond investigations.
Whatever terms a restructured loan might include, they will reflect the complex new relationship spawned between Germany’s largest bank and its highest-profile client. Ethicists say this concerns them.
“When you have political appointees making decisions about banks that the president owes a lot of money to, it looks terrible,” said Richard Painter, a law professor at the University of Minnesota who was the chief ethics lawyer for President George W. Bush. “The U.S. government is dealing with regulatory and criminal issues with the big banks all the time, and if he owes them a lot of money, there might be an incentive to favor less regulation and less enforcement for the banks.”
Deutsche Bank declined to comment.
Even better news, Deutsche Bank expects to record a pretax charge of about $1.17b in 4Q.
So between Obama’s legacy and Trump’s loan mods, the department of Justice settled for 22c on the dollar of their original demand? That is around 10% of 2016’s revenues… “cost of doing business”?
Where did the number come from? That’s easy…
hmm…back in October Moody's had $3.1B penciled in for DB as a bond-positive number. pic.twitter.com/ryawWXWSMn
— Carl Lantz (@CarlLantz) December 23, 2016
Deutsche Bank AG (USA) (NYSE:DB) rose more than 1% in premarket trading Friday. Year-to-date, DB has declined -41.24%, versus a 10% rise in the benchmark S&P 500 index during the same period.
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