Summary: Germany’s largest bank has agreed to pay the federal government billions of dollars to settle a misselling case.
Deutsche Bank has agreed to pay the U.S. government $7.2 billion. Germany’s largest bank had been accused of misselling mortgage-backed securities (MBS), and recently, they settled their case with the Department of Justice. This announcement came after a series of bad banking stories related to the misselling of MBS on the European market.
Misselling is defined as a deliberate and reckless sale of products or services when a contract is misrepresented or unsuitable for the customers’ needs. In the case of mortgages, this often means giving them to people who cannot afford them, an action that led to the U.S. housing crisis of 2008.
After months of negotiating with the DOJ, Deutsche Bank announced on Friday that they would pay a fine of $3.1 billion along with $4.1 billion in consumer relief. This followed an investigation by the Department of Justice, who also investigated Barclays and Credit Suisse. Federal prosecutors said that Barclays could owe $5.3 billion and Credit Suisse may have to pay $2 billion.
The Deutsche Bank settlement is the third highest bank penalty of this kind, according to NBC News. The largest was bestowed upon Bank of America in 2014 for $16.7 billion followed by JPMorgan Chase’s $9 billion fine in 2013.
Despite the large sum, this settlement is a relief for Deutsche, according to Hermes Investment Management senior credit analyst Filippo Alloatti.
“For Deutsche Bank, it’s a relief to be rid of such an overhang. Now back to executing and tweaking the strategy please,” Alloatti told CNBC.
While German banks may have been acting in an allegedly unscrupulous manner, economist Paul Donovan said that at least in that country, there was lending and activity, actions that he said are important to a thriving economy. He contrasted Germany with Italy, who was experiencing their own financial crisis.
“Both countries have banks in problems but if you see what is going on in Germany, banks are still lending. As an economist that’s what I care about,” Donovan said. “As individual banks, do what you like, but what I am interested about is do we have credit going into economy? Is this supporting normal activity? Whatever is going on with the German banking system, they are still supporting the economy. Italy is rather depressing to look at.”
Source: NBC News
Photo courtesy of Express
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