US asks Deutsche Bank for $14bn to settle mortgage investigation

German lender says it will not pay sum sought by US for potential civil claims

US shares of Deutsche Bank tumbled 6.5 per cent to $13.80 in extended trading in New York. Photograph: Kai Pfaffenbach/Reuters

US shares of Deutsche Bank tumbled 6.5 per cent to $13.80 in extended trading in New York. Photograph: Kai Pfaffenbach/Reuters

 

Deutsche Bank says it will not pay the $14 billion sought by the US Justice Department to settle an investigation into the firm’s sale of residential mortgage-backed securities, a figure that’s more than triple what some analysts estimated could be a potential worst case.

“Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited,” the company said in a statement early Friday in Frankfurt.

“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.”

Germany’s largest lender confirmed that it had started negotiations with the justice department to settle civil claims the US may consider over the bank’s issuing and underwriting of residential mortgage-backed securities from 2005 to 2007.

The $14 billion is considered an “opening bid” that could go “much lower,” according to the Wall Street Journal, which reported the figure shortly before Deutsche Bank issued its statement.

Shares tumble

US shares of Deutsche Bank tumbled 6.5 per cent to $13.80 in extended trading in New York. The company’s stock has plunged 42 per cent this year in Germany up to the close of trading on Thursday.

A US justice department spokesman declined to comment on the negotiations.

JPMorgan Chase analysts wrote in a note to clients earlier on Thursday that a settlement of about $2.4 billion “would be taken very positively,” and that an agreement exceeding $4 billion would pose questions about the bank’s capital positions and force it to “build additional litigation reserves”.

Deutsche Bank chief executive John Cryan has struggled to boost profits as unresolved legal probes and claims compound concerns that the lender will be forced to raise capital or sell assets.

Reaching a mortgage deal would clear a major hurdle for the bank, which has paid more than $9 billion in fines and settlements since the start of 2008. – (Bloomberg)