This week, John Cryan, the CEO of Deutsche Bank Niamen AKT (NYSE: DB), announced in a message to employees that the bank finally closed the $7.2 billion settlement with the U.S. Department of Justice (DoJ) regarding its sale of toxic mortgage securities during the financial crisis in 2008.
“The settlement in principle concerned the bank’s issuance and underwriting of residential mortgage-backed securities (RMBS) and related securitization activities from before the 2008 financial crisis,” John said to Deutsche’s employees in the message.
“Although it is good that we can bring this matter to a close, the price we are paying is high. The DoJ is highly critical of these transactions. The conduct they cite, which occurred from 2005 to 2007, falls short of our standards and is unacceptable,” he added.
In December, the bank made an agreement to pay $3.1 billion for a civil monetary penalty, and pay $4.1 billion in consumer relief in the United States, which will be delivered over 5 years. The bank said in the message that the penalty would have a negative impact on the fourth quarter 2016 financial results. In addition to $7.2 billion, the bank had an earlier settlement of $1.9 billion with Fannie Mae and Freddie Mac, and the total amount reached $9.1 billion.
Even though the cost is high, it is a relief to the bank and its shareholders, because the federal investigators set the penalties to be twice higher initially. After the close of settlement, Deutsche Bank is said to be the last major banks to deal with such a costly settlement with U.S. investigators regarding the pre-crisis mortgage securities.
After the announcement of finalized the settlement, shares of Deutsche Bank dropped on Wednesday.