BREAKING THE BANK

Deutsche Bank says it won’t pay the $14 billion fine proposed by the US Justice Department

Obsession
Future of Finance
Obsession
Future of Finance

Deutsche Bank gladly told shareholders in July that it planned to close its biggest pending legal cases this year, including one for its sales of residential mortgage-backed securities in the US before the financial crisis. But now the bank faces a $14 billion fine.

The amount proposed by the US Justice Department comes on top of the €12 billion ($13.5 billion) Deutsche Bank has already shelled out in legal fines since 2011. For some context, the gross domestic product of El Salvador was just under $26 billion in 2015, according to the World Bank.

The German bank said today (Sept. 16) that it won’t pay such a staggering amount. A statement read:

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.

If the lender can’t get the Justice Department to significantly reduce the fine, then it has a problem. Deutsche Bank has set aside just €5.5 billion for future litigation charges, according to its last earnings report. The bank’s total market value is only €16.7 billion.

Fines of this eye-watering size aren’t unheard of. Bank of America had to pay out $17 billion in 2014 for similar charges of selling flawed mortgage securities.

Deutsche Bank’s share price dropped as much as 8% this morning. It’s already near a record low at about €12, down from almost €100 in early 2007, as the bank goes through a deep restructuring that will cut 3,000 jobs. Unfortunately for CEO John Cryan (pictured above) this is definitely not the end of the bank’s legal troubles. For one, it still has to account for improper trading in Russia.

home our picks popular latest obsessions search