This week, the United States Department of Justice proposed that Deutsche Bank AG to pay $14 billion as a settlement for a handful of high-profile mortgage-securities probes that befell the institution as a result of the recent financial crisis. This payout amount, would compare, then, with the largest penalties that other banks would have had to pay in order to resolve issues of similar; it is also mostly along with what investors had predicted.
Of course, he figure is still somewhat preliminary as it was merely a number that came up during discussions between the bank and government lawyers. Accordingly, it is now expected that Deutsche Bank will contend with the number and the discussion will continue.
Indeed, the bank said: “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.”
A former Justice Department official who had been involved past mortgage and securities settlement negotiations responded: “The point with coming in with a number like that is to set expectations, to express the seriousness of the conduct from the department’s perspective, and to signal that, in order for negotiations to continue, the financial institution is going to have to put a significant amount of money on the table as a counter.” While no number has been officially named, this official did say that the final amount could be as low as half of what was proposed.
As such, Deutsche Bank laywers intimate that the bank views somewhere between $2 billion and $3 billion as a reasonably expected payout in order to close this US Department of Justice probe quickly and with as little incidence as possible. After all, if the final bill reaches upwards of 5 billion EU, Deutsche Bank will not be able to manage a capital hike.
At this point, then, it is not clear how much the amount of the proposed payment wil actually be. Perhaps the only certainty may be that the bank will, in fact, have to make this payment, whatever that is going to be. What we do know is that this probe is quite likely to set off alarms among political leaders in the largest Economy in Europe.