Just in time for the end of the year the US Department of Justice (DoJ), after months of negotiations, came to an agreement for the settlements to be paid by Deutsche Bank and Credit Suisse for the sale of mortgage-backed securities in the run-up to the financial crisis. The intent of the DoJ was that of pushing for an omnibus deal with three main European banks, the two already mentioned together with Barclays, which on the other hand refused to consent to the settlement amount proposed. Nevertheless, the agreed-upon settlements bring the total penalties paid by banks worldwide for mis-selling subprime mortgage securities to $58bn, signing a victorious closure of the year for US authorities. The latter extracted several billions of dollars from major financial institutions in the last decade. In first place, domestic lenders were scrutinized and pursued for the origination of the securities that sparked the financial crisis with Bank of America, JP Morgan Chase, and Citigroup’s bill amounting to $16.65bn, $13bn, and $7bn respectively.
The focus is now on the European banking system. Two days before Christmas, Deutsche Bank and Credit Suisse agreed to pay a combined penalty of almost $12.5bn. In greater detail, the former’s part should total $7.2bn, corresponding to $3.1bn in civil penalty and $4.1bn in relief to consumers spread over several years. Credit Suisse will be charged for a total of $5.28bn, of which $2.48bn of civil penalty and $2.8bn of consumer relief to be paid over five years. The two banks were strongly relieved by the agreement as they came out relatively lightly from the process, despite analysts’ forecasts. Especially for Deutsche Bank, whose investors were worried due to rumors of an impending government bailout, the deal was a very positive news. In facts, the lender’s shares were up 0.3 per cent after the announcement. Alongside, the agreement eliminates the last big litigation issue to be dealt with by Credit Suisse, whose shares fell by roughly 1%.
In the light of these first deals, other settlements with European lenders are expected for the next year, including those with HSBC, Royal Bank of Scotland, and UBS. On the other hand, Barclays refused to agree upon the demanded sum as, according to some experts, it was prepared to pay a cap of about $2bn, including customer redress, while the Department of Justice pushed for a cipher closer to those paid by Deutsche Bank and Credit Suisse. The result was the filing of a lawsuit by US authorities against the UK bank and two of its ex-employees. To be cited in the suit are two executives closely related to the supervision and trading of mortgage backed securities, Paul Menefee and John Carroll. The accuse is that of having “securitised billions of dollars of loans it knew had material defects” and having financed the issuing of loans to knowingly insolvent customers causing an exceptionally high default rate.
According to prosecutors, Barclays fraudulently sold more than $31bn of mortgage-backed securities in 36 separate deals from 2005 to 2007. Barclays answered by claiming the accuses are not based on material facts and, therefore, by invoking the necessity to protect its stakeholders against unreasonable allegations and demands. That of Barclays is in facts a bet against US authorities. Behind the bank’s decision not to settle, the rationality is that it has no other significant pending suit going on, unlike Deutsche Bank which is under investigation for its businesses in Russia. Alongside this, there is surely the hope in a less tough US administration under the president-elect Donald Trump.
Fiammetta Galzerano
The focus is now on the European banking system. Two days before Christmas, Deutsche Bank and Credit Suisse agreed to pay a combined penalty of almost $12.5bn. In greater detail, the former’s part should total $7.2bn, corresponding to $3.1bn in civil penalty and $4.1bn in relief to consumers spread over several years. Credit Suisse will be charged for a total of $5.28bn, of which $2.48bn of civil penalty and $2.8bn of consumer relief to be paid over five years. The two banks were strongly relieved by the agreement as they came out relatively lightly from the process, despite analysts’ forecasts. Especially for Deutsche Bank, whose investors were worried due to rumors of an impending government bailout, the deal was a very positive news. In facts, the lender’s shares were up 0.3 per cent after the announcement. Alongside, the agreement eliminates the last big litigation issue to be dealt with by Credit Suisse, whose shares fell by roughly 1%.
In the light of these first deals, other settlements with European lenders are expected for the next year, including those with HSBC, Royal Bank of Scotland, and UBS. On the other hand, Barclays refused to agree upon the demanded sum as, according to some experts, it was prepared to pay a cap of about $2bn, including customer redress, while the Department of Justice pushed for a cipher closer to those paid by Deutsche Bank and Credit Suisse. The result was the filing of a lawsuit by US authorities against the UK bank and two of its ex-employees. To be cited in the suit are two executives closely related to the supervision and trading of mortgage backed securities, Paul Menefee and John Carroll. The accuse is that of having “securitised billions of dollars of loans it knew had material defects” and having financed the issuing of loans to knowingly insolvent customers causing an exceptionally high default rate.
According to prosecutors, Barclays fraudulently sold more than $31bn of mortgage-backed securities in 36 separate deals from 2005 to 2007. Barclays answered by claiming the accuses are not based on material facts and, therefore, by invoking the necessity to protect its stakeholders against unreasonable allegations and demands. That of Barclays is in facts a bet against US authorities. Behind the bank’s decision not to settle, the rationality is that it has no other significant pending suit going on, unlike Deutsche Bank which is under investigation for its businesses in Russia. Alongside this, there is surely the hope in a less tough US administration under the president-elect Donald Trump.
Fiammetta Galzerano