Deutsche Bank Shares Stumble As DoJ Settlement Looms

Deutsche Bank shares are sliding this morning after headlines from CNBC reporting a settlement is close with the US Justice Department over mortgage fraud. With analyst expectations/hopes in the $2 to $5 billion range (against the initial $14 billion fine), reports say the bank is set to pay "less than $14 billion" which has perhaps spooked investors with its uncertainty.

As Bloomberg reports, Deutsche Bank will pay "far less" than the initial $14b settlement sought by the U.S. DOJ to resolve litigation over residential mortgage-backed securities, Reuters says, citing a person familiar with the matter. The source says there is a "good chance" the matter will be resolved this week, possibly as early as Wednesday. However, the deal is not finalized yet, and resolution could still be delayed.

And for now the stock is fading...

 

As a reminder, a DB spokesman confirmed back in July that negotiations had been initiated with the DOJ though no estimates had been provided on the size of any potential settlement before today.  That said, the Wall Street Journal notes 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.

DB


The size of the proposed settlement is also bad news for other European banks that remain under investigation by the DOJ including Barclays, Credit Suisse, UBS and RBS.  Lawyers working with other banks have indicated that DB's settlement would likely set the precedent for what other Euro banks might be expected to pay.