Credit Suisse and Deutsche Bank Agree to Huge Fines with U.S.

Deutsche Bank hopes for a fresh start to 2017 after it reached a deal of $7.2 billion with authorities in the U.S. to settle the allegations of how it sold mortgage-backed securities.

The largest lender in Germany said Friday that it agreed to in principle to pay a civil fine of $3.1 billion that would be supplemented by a $4.1 billion payment to consumer relief over time.

This announcement of its fine comes amidst a number of banking stories that are related to the selling problems of mortgage-backed securities that were published prior to the European market opening on Friday.

The news included articles about federal prosecutors in the U.S. planning to sue Barclay’s bank in Britain and that Credit Suisse also reached a provisional deal of $5.3 billion, which means the Swiss-based bank would take a charge before taxes of close to $2 billion.

Of the total demanded by authorities of Credit Suisse, more than $2.48 billion is an immediate fine that settles claims and another $2.8 billion is to be paid over a period of five years in consumer relief.

The agreement with Deutsche Bank follows negotiations that lasted months with the Department of Justice in the U.S. and is the third largest penalty to date imposed against a bank for the settlement of claims for miss-sold MBS.

Although the payment of $7.2 billion is very large, investors could take comfort knowing it was far less than the fine of $16.8 billion that Bank of America paid in August of 2014 and $9 billion that JPMorgan Chase was charged in November of 2013.

In addition, of the entire amount, just $3.1 billion that represents the civil fine is required to be delivered imminently in cash.

Its entire penalty is about half the $14 billion that the Justice Departed claimed in September, which spooked many investors into selling shares of the German bank a knocking the value down to a record low.

Since then the stocked staged a big comeback of 68% through the close of business on Thursday, although it is still languishing more than 20% below its price to start 2016.

Overnight in Italy the government approved a rescue package of $20.9 billion for Italian banks under crisis, with Banca Monte dei Paschi de Siena ready to become the first recipient of the new fund from the government.

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