Deustche Bank in Record-Breaking $7.2B RMBS Settlement

After prolonged negotiations punctuated by news leaks, the U.S. Department of Justice (DOJ) has announced a settlement with Deutsche Bank regarding charges that the German financial institution misled investors in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) between 2006 and 2007. Deutsche Bank will resolve the DOJ charges for $7.2 billion, which is the largest RMBS resolution for the conduct of a single entity.

Deutsche Bank will divide the $7.2 billion restitution between a $3.1 billion civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) and $4.1 billion relief package to underwater homeowners, distressed borrowers and affected communities.

“This resolution holds Deutsche Bank accountable for its illegal conduct and irresponsible lending practices, which caused serious and lasting damage to investors and the American public,” said Attorney General Loretta E. Lynch. “Deutsche Bank did not merely mislead investors: it contributed directly to an international financial crisis. Our settlement today makes clear that institutions like Deutsche Bank cannot evade responsibility for the great cost exacted by their conduct.”

The record-breaking settlement is considerably higher than a $2.4 billion figure quoted last September when a German magazine claimed Deutsche Bank was negotiation an agreement to cover both the RMBS problems as well as other charges involving allegations of manipulating foreign exchange rates, money laundering and dubious equity trades in Russia. The DOJ announcement only covers the RMBS aspect of Deustche Bank’s operations, with no mention of the other issues that were allegedly being negotiated.