Deutsche Bank agrees to $7.2 billion mortgage settlement with U.S.

Fri Dec 23, 2016 11:20am EST
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By Karen Freifeld, Arno Schuetze and Kathrin Jones

NEW YORK/FRANKFURT (Reuters) - Deutsche Bank (DBKGn.DE: Quote) has agreed to a $7.2 billion settlement with the U.S. Department of Justice over its sale and pooling of toxic mortgage securities in the run-up to the 2008 financial crisis.

The agreement in principle, announced by Deutsche Bank's Frankfurt headquarters early Friday morning, offers some relief to the German lender, whose stock was hit hard in September after it acknowledged the Justice Department had been seeking nearly twice as much.

It also highlights the Justice Department's recent efforts to hold European banks accountable for shoddy securities that contributed to the U.S. housing market collapse.

The department sued Barclays PLC (BARC.L: Quote) on Thursday over similar claims, after having reached $46 billion in settlements with U.S. banks over the last three years.

Deutsche Bank does not plan a capital increase to cover the settlement, a person close to the bank said. The lender expects the agreement to be finalized in early 2017, before President-elect Donald Trump takes office, said the source, who spoke on the condition of anonymity.

Deutsche does expect to record a pretax charge of about $1.17 billion in its fourth quarter because of the civil monetary penalty, according to its press release.

As part of the agreement, Deutsche Bank would pay a civil monetary penalty of $3.1 billion and provide $4.1 billion in consumer relief, such as loan forgiveness. The bank cautioned that there is "no assurance" the two sides will agree on the final documents.

A spokesman for the Justice Department declined to comment.   Continued...

A logo is pictured on the Deutsche Bank building in Geneva, Switzerland, October 11, 2016.  REUTERS/Denis Balibouse