Deutsche Bank has finalized a $7.2 billion deal with the U.S. Department of Justice, the government agency said Tuesday. The deal is in response to their sale of toxic mortgage securities in the run-up to the 2008 financial crisis.
On December 23, the Frankfurt-based bank announced it had reached the agreement in principle with U.S. authorities.
“Deutsche Bank did not merely mislead investors: it contributed directly to an international financial crisis,” Attorney General Loretta Lynch said in the statement.
Deutsche Bank’s agreement represents the largest resolution for the conduct of a single entity in misleading investors in residential mortgage-backed securities, the department said.
The banks conduct between 2005 and 2007 was “unacceptable,” said John Cryan, Deutsche’s chief executive. He noted the bank had exited many of the underlying activities they were involved in and improved their standards.
In September, after the bank acknowledged the Justice Department made an opening demand of $14 billion, their stocks hit a record low.
Their ADR-listed shares closed down 3.2 percent to $18.56 on the New York Stock Exchange.
Deutsche Bank will also pay a civil monetary penalty of $3.1 billion and give $4.1 billion in consumer relief to homeowners, borrowers and communities harmed by its practices.
The bank has also agreed to a statement of facts about how it made false and misleading representations to investors, regarding the loans underlying billions of dollars’ worth of mortgage securities issued by the bank in 2006 and 2007.
In May 2006, a supervisor was quoted saying that a loan originator would underwrite loans to anyone with “half a pulse,” according to the statement of facts the bank agreed to.
The same supervisor was also quoted that month saying that Deutsche Bank “tolerated misrepresentation” from originators who accepted blacked out paystubs so that they could state a borrower had a higher income.
The bank was also aware that appraisals were inflated. They even concealed second liens on properties.
Other banks have still paid even more than Deutsche, but their settlements also included wrongdoing by institutions that they acquired during the crisis. For example, Bank of America agreed to pay $16.7 billion. Their settlement also covered Merrill Lynch and Countrywide Financial. JPMorgan Chase & Co. settled for slightly less, at $13 billion, which covered Washington Mutual and Bear Stearns.
The Justice Department has reached $46 billion in settlements with U.S. banks over the securities that contributed to the U.S. housing market collapse and financial crisis.