Deutsche Bank signs $7.2 bln deal with U.S. over risky mortgages

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By Karen Freifeld | NEW YORK

NEW YORK Deutsche Bank has
signed a $7.2 billion settlement with the U.S. Department of
Justice over its sale of toxic mortgage securities in the run-up
to the 2008 financial crisis, the government agency said on
Tuesday.

Deutsche’s agreement represents the largest resolution for
the conduct of a single entity in misleading investors in
residential mortgage-backed securities, the department said in a
statement.

“Deutsche Bank did not merely mislead investors: it
contributed directly to an international financial crisis,”
Attorney General Loretta Lynch said in the statement.

John Cryan, Deutsche’s chief executive, said that the bank’s
conduct between 2005 and 2007 fell short of standards and was “unacceptable.”

He said the bank had exited many of the underlying
activities and improved standards.

Deutsche Bank ADR-listed shares were down 3.3 percent to
$18.55 on the New York Stock Exchange.

The Frankfurt-based bank announced it had reached the
agreement in principle with U.S. authorities on Dec.
23.

The Justice Department held Deutsche and other European
banks accountable for the shoddy securities that contributed to
the U.S. housing market collapse after having reached $46
billion in settlements with U.S. banks over the last three
years.

Deutsche’s stock price was hit hard last September after the
bank acknowledged the Justice Department had been seeking $14
billion.

As part of the deal, Deutsche Bank will pay a civil monetary
penalty of $3.1 billion and provide $4.1 billion in consumer
relief to homeowners, borrowers and communities harmed by its
practices.

The bank also agreed to a statement of facts that describes
how it made false and misleading representations to investors
about the loans underlying billions of dollars worth of mortgage
securities issued by the bank in 2006 and 2007.

In May 2006, a supervisor is quoted as warning a senior
trader that a loan originator would underwrite loans to anyone
with “half a pulse”, according to the statement of facts.

The supervisor also said that month that Deutsche Bank,
among others, “tolerate misrepresentation” from originators with “misdirected lending practices” such as a borrower’s
ability to pay the loans, accepting blacked out pay stubs so
they could claim higher incomes.

The preliminary deal with Deutsche was made public before
Christmas as U.S. probes of other European banks over the shoddy
securities also came to a head.

Zurich-based Credit Suisse announced that it had agreed in
principle to a $5.3 billion settlement, and the Justice
Department sued Barclays Plc and two former executives
for fraud for allegedly deceiving investors about the quality of
loans underlying tens of billions of dollars of the securities.



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