Deutsche Bank has reached a $7.2bn final settlement with the US Department of Justice (DOJ) over the issuance and underwriting of residential mortgage-backed securities (RMBS) between 2005 and 2007.
The bank admitted to misleading investors, saying that it “knowingly made false and misleading representations to investors about the characteristics of the mortgage loans it securitized in RMBS worth billions of dollars issued by the bank between 2006 and 2007”.
The bank also admitted to concealing second liens on properties from investors, and knowing that appraisals were inflated.
The agreement is the single largest RMBS resolution for the conduct of a single entity. Under the arrangement, the bank would have to pay a civil monetary penalty of $3.1bn as well as offer $4.1bn in consumer relief over five years to underwater homeowners, distressed borrowers and affected communities.
The German banking group said it expecting the civil monetary penalty to have a negative impact of about $1.2bn on its fourth quarter pretax earnings.
Deutsche Bank CEO John Cryan said that the bank’s conduct was short of standards and "unacceptable".
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“We apologize unreservedly for it. We have subsequently exited many of the underlying activities and comprehensively improved our standards,” Cryan said.
The bank adhe conduct they cite, which occurred from 2005 to 2007, falls short of our standards and is unacceptable. We apologize unreservedly for it.
Attorney General Loretta Lynch said: “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. Deutsche Bank did not merely mislead investors: it contributed directly to an international financial crisis.”