Deutsche Bank Wins in Stare-Down With DOJ Over Mortgage-Backed Securities Liability
Deutsche Bank Wins in Stare-Down With Department of Justice Over Mortgage-Backed Securities Liability; Credit Suisse Also Settles While Barclays Holds Out
Yves Smith
Naked Capitalism
The resolution of the Deutsche Bank case is instructive. Oddly, US authorities had apparently leaked that they were seeking a settlement of $14 billion, at a point in time much earlier than they had typically let their ask be known. Historically, these media smoke signals took place after there had been some interaction between the target and the Feds. The early news stories might have been a slip up, or they might have signaled an intent to be bloody-minded. Or perhaps they were to show how far apart the German bank’s bid of $2 to $3 billion was from the DoJ’s $14 billion offer, and get harmed US borrowers and media allies to make a stink, allowing the US authorities to say the the public recognized that Deutsche was a bad actor and thus showing much leniency was not politically feasible.
But Christmas came early for the German bank in the form of the Trump win. While Trump might view a foreign bank as a cheap target for burnishing his law-enforcement credentials (all the US banks have settled on these issues), it’s now clear that the incoming Administration intends to roll out the red carpet for financiers.
The result is Deutsche got off easy. It is only having to pay $3.1 billion in cash (and some of these settlements have been deductible for tax purposes) and another $4.1 billion in promised “consumer relief” as in “stuff maybe we’ll do in the future.” Even with an official (but toothless) monitor for the National Mortgage Settlement of 2012, many of those terms were violated, in addition to banks falling short of their targets. And the bottom line was very little of the “consumer relief” actually went to harmed borrowers.
This settlement allows each side to declare victory (one of the big objectives), since Deutsche paid more than many observers expected but still well less than the Department of Justice’s too-well-broadcast target. But the fact that Deutsche still has plenty left in its litigation reserve even after deducting the full cash portion says it did very well.