The Department of Justice has added to the difficulties of the beleaguered Deutsche Bank with a demand for a record $14-billion fine. This sizeable fine is an additional blow to Deutsche Bank who in the last few years have had to submit to a series of fines amounting to billions of dollars. The bank also has a further 8,000 legal cases in process.
The bank’s response has been to outline its expectation that this was an “opening position” from the DoJ whom it expects will eventually accept a “materially lower” amount.
Deutsche Bank is one of a group of banking and financial institutes which have been accused by American authorities of misleading buyers in the run-up to the major economic crisis of 2008. The underpinning lending in many cases proved to be either fundamentally lacking in value or openly fraudulent, leading to losses of billions of dollars to buyers as a consequence of the collapse of the housing market. The crisis destroyed many banking companies and led to the most severe recession which the US has seen since the Depression of the ’30s.
If the final payment figure does reach double figures it will be the biggest to ever be inflicted by America on a foreign based bank. The largest previous payment was the $8.9 billion which had to be paid in 2014 by BNP Paribas of France, also for violations of sanctions. On a domestic level the US-based Goldman Sachs investment bank were required to pay out over $5 billion when faced with similar accusations.
It is as yet unclear whether the full amount will be paid in the Deutsche Bank case, with many pundits believing a far smaller sum will eventually be accepted by the Justice Department.
Baader Bank analyst Robert Halver was quoted as saying: “It probably won’t reach $14 billion if you compare it with other banks that were active in this business,” “We’re counting on more like $5.0 billion. But of course, $5.0 billion is still painful.”
The bank are said to have set aside a reserve fund of $5.5 billion in order to settle their backlog of outstanding legal issues, but any larger sum would negatively impact on the bank according to analyst Christian Koch, writing “A fine larger than the present provisions would make a capital increase more likely”. Deutsche have previously been penalised $2.5 billion in the US in addition to settling over accusations on breaking trading bans with Iran and Syria.
The new Chief Executive of Deutsche Bank, John Cryan, outlined his ambitious aim of resolving all outstanding legal cases, including this one, by the end of 2016. Even after any deal in this case is concluded Deutsche will still continue to face ongoing investigations by the New York Financial Services Department’s regulatory body, which is looking into serious accusations relating to the Russian wing of the bank and its alleged money laundering. With such enormous challenges, Cryan has embarked on a swingeing re-structuring programme leading to a predicted loss of 9,000 jobs throughout the bank’s international business and a loss of 200 German branches.
Deutsche Bank lost 7 billion euros in 2015, and shares dropped sharply by nearly 7.3% in Frankfurt recently. The bank’s shares are now standing at only around 10% of the level they were at before the economic crisis. They are now performing worse than any of the other major German shares.