DoJ Asks Deutsche Bank to Pay $14 Billion in Mortgage Settlement

The Wall Street Journal reported that the Department of Justice is seeking $14 billion from Deutsche Bank to settle its claims in a series of mortgage abuses. According to the Journal, Deutsche’s position is that $2 to $3 billion as a reasonable figure. Analysts anticipated that the maximum settlement amount would be in the $4.5 to $5 billion range.

A few of the very high profile mortgage settlements have had leaks about the negotiations over the headline amount, such as the $16.6 billion Bank of America settlement for mortgage abuses. In those cases, the final amount was not terribly below the government regulators’ asking amount. One reason is that even though it’s generally understood that the government does not to devote the resources to litigating such complex cases, the flip side is that the defendant is even less able to stand the uncertainty and bad press of having talks break down and having the government move into another phase of discovery in preparation for a trial, which would be hugely damaging from a reputational standpoint.

Nevertheless, the fact of the leak and the Journal exposing the apparently big gap between the government’s ask and Deutsche’s bid can cynically be seen as part of the negotiation theater. In some past cases like the settlement negotiations with JP Morgan, the press leak appeared to be to put pressure on the bank to be more realistic, as well as manage shareholder expectations. Here, the dynamics may be different. First, Deutsche is in a weak position politically, not just by virtue of being a foreign bank, but as being widely recognized within the financial services industry and almost certainly by regulators as being awash in managerial and internal control failures. It’s walking wounded.

But the offset is end-of-Presidential term dynamics. For instance, financial regulators are rushing to close settlements before the Administration regime change so that senior staffers can flog their resumes and point to a list of accomplishments. As anyone who has worked on negotiations will tell you, someone who is in haste to close a deal is in a weak bargaining position and will wind up accepting worse terms than a party facing no time constraints.

And as we’ve shown, on every past mortgage settlement, there’s been a huge gap between the nominal settlement amount and the real economic cost to the perp. Any part of the settlement that is not a hard dollar fine or restitution should be treated with considerable skepticism. These pacts are larded up with undertakings like “give away a certain dollar amount of foreclosed properties” or “make a certain amount of mortgage modifications” that are set in such as way as to either cost the bank very little (or even impose costs on third parties) or amount to giving the bank credit for things they were going to do in any event. So the gap between $14 billion and $3 billion is far smaller than it appears. Expect as before for the government to get close to its asking number. If this settlement departs from precedent and Deutsche ponies up the overwhelming majority in hard dollars, it would confirm suspicions that the US is far more willing to play hardball with foreign banks than native sons. Barclays, Credit Suisse, UBS and Royal Bank of Scotland are still on the hot seat and could face similar rough (as in fully deserved) treatment.

Print Friendly, PDF & Email


    1. JerseyJeffersonian

      If those gold holdings are even still there, that is.

      Maybe the Germans already had to settle for the gold stolen from the Ukrainian Central Bank so they’d stop asking about this.

      So even if my speculations are off of the mark, lay the blame at the feet of the Zeitgeist. Ya just can’t get cynical enough.

        1. Yves Smith Post author

          Ahem, I’ve never had to hire a tech person or call Apple tech support, which is a huge tax on my time and could be an out of pocket cost. I would if I owned a PC (I did elect to bring in a consultant to manage the transfer to my new computer, but that was only out of convenience, not necessity). Lots of stats showing that companies with Windows require 10x the number of internal help desk people for the same number of Mac users. Apple is admittedly getting crappified but the latest Windows OS is a horror. So please don’t make dubious arguments. And don’t tell me I should be using Linux. The GUIs and apps are not ready for non-computer professional users yet and my time is not well spent in becoming an amateur tech.

        2. fajensen

          Apple equipment is Expensive to buy, but, not *that* expensive. You open it and it Works. There is usable software on there. There is no crapware installed.

          I buy pretty much two kinds of computers these days. For office work, various flavors of MacBook.

          For computing work, IF someone MUST have a hardware device, I prefer, pre-crapification used Lenovo X-series laptops with windows replaced by Linux.

          This is because:

          The Mac’s and iPhones comes “from the factory” with device management tools that actually work and VMware Fusion for 70 USD. This is a huge advantage in a business environment (UNIX’es have effective management tools like CFEngine and Puppet – but, one needs good engineers to work with those. It is easier to roll out a standard VMware image and then let users tinker).

          Microsoft has an abomination called “InTune”, which barely works, sucks up at least one core for up to 30 minutes and generally is just a nuisance to deal with. More often than not, actually installing a piece of windows software like Office(!) with Intune requires a visit to IT because the licensing will fail.

          There is simply no sense in buying a windows 10 machine. VMware Fusion with Win 7 on it runs the odd windows applications (project and excel, sadly) just fine on the Mac and this being an image it is also easy to revert Windows spyware enhancements should one sneak in. Once we factor in the brickage, bother, spyware, malware, and crapware – the latter even pre installed by the PC manufacturer – that IT has to clean out from every, single, windows laptop procured before the users receive it, Windows 10 becomes even worse.

          Windows 10 is for gaming only, and, one wonders how long that situation will last. Steam released SteamOS a while back, but it seems like they are not doing much with it.

  1. Mark John

    That’s chump change, folks Deutsche Bank has at least a $75 trillion exposure in derivatives. I don’t know what that means precisely, but, given the cast of characters, I don’t imagine it being very good.

    1. fajensen

      It probably means that the Ackermänner are leveraged a conservative 75000/6 or about 12500 times, so, if they have to pay just a little more than the 6 billion they negotiate for, someone will get quite a margin call.

      These days, Every time I see something stupid, I try to put it aside, only to discover later that indeed they doubled down on it and then kept on doubling. Even happens at work.

  2. Mark John

    And while we are at it, can’t we start making up mob nicknames for the banksters. I have one. . .Twelve Carat Dimon. Feel free to pan.

    1. ChrisPacific

      I would like to see an expose of Hillary Clinton’s links to Wall St. entitled “Dimons are a girl’s best friend.”

  3. JMarco

    I become convinced that DOJ & SEC are using fines to finance their dept. operations since Republican congress is determined to under-fund them. But all the wronged mortgage holders are left out with no regress.

    1. Yves Smith Post author

      Please stop making stuff up. It’s a violation of site policies.

      All mortgage settlements (and other financial settlements) clearly specify what charges are fines and what components are restitution to wronged parties.

      The SEC is funded via Congressional appropriations and has been kept chronically underfunded. See former SEC chairman Andrew Levitt’s book Take on the Street for details of how Congresscritters like Joe Lieberman would regularly threaten budget cuts if the SEC dared to get out of bed. Last I checked the SEC’s budget was 2/3 of what they generated in fees (like registration fees) and fines. It’s probably lower now.

      The DoJ also has its budget approved by Congress, which was $21 billion for FY 2015:

  4. ambrit

    And, as usual, no one goes to jail.
    The ‘word on the street’ is shifting strongly into “banks are evil, and must die for their sins” territory. The cadre of the “dispossesed” is growing. Being much more visible lately, the “dispossesed” spread a subtle fear among the population. “Who will be next?” informs much of the secret thinking.
    Politically, the atmosphere is favouring demagogues.
    I’m thinking a big win for Trump is in the cards.

      1. ambrit

        If so, some sort of “Slam Dance” for the Bid Brigade I imagine, we are looking at a ‘Vote of No Confidence’ government.
        Shouldn’t that be “Bill of No Goods?”
        The right ‘Shock Treatment’ for Bill would be several days of continuous repetition of “Little Blue Dress” over the public address system. H can ask Barry to send back some of the old Gitmo “Information Extraction Specialists” he, in the softness of his heart, couldn’t fire.
        The devolution of the public discourse concerning this election cycle into parody is not a good thing.

  5. lb

    I swear I recall Deutsche Bank playing hardball in some thinly-veiled political way in order to get a bailout from the Americans. They did, apparently, receive a $455 million dollar loan from the NY Fed ( during that time. Maybe my memory is fuzzy but I recall some strong language from DB or Germany acting as a proxy for its big bank. (I remember being a bit pissed that American federal reserve banks were bailing out foreign banks). This all read to me as Germany, or at least DB as one of the biggest banks on earth, having major clout with the American/western Bank power bloc.

    Perhaps not so much, eight years later.

    All of this has me wondering whether there’s a political angle here. The DoJ is suddenly not feckless against a big bank? A bank that’s the largest in Germany? (A bank presumably with some major unwind possibilities when the next game of musical chairs stops, and hence some exposure for the American big banks?) A bank that was recently said to need to raise capital to survive if it were hit by a fine this large ($9 billion, per for having helped launder a metric butt-ton of Russian money?

    Call me nuts (no, really, I’m fine with being wrong and overstated here!) but maybe the read here is “Hey Merkel (or some other Germans with power): the U.S. is making everyone pick sides between it and Russia.”

  6. Alex

    Regarding reputational damage, is there any evidence the TBTFs have ever cared about this, other than in regard to share price? Wondering if there are examples in the press of lost business due to this type of case.

    1. Yves Smith Post author

      Um, share price is all the execs care about. Putting that aside is like saying, “Aside from going splat on the ground, is there any reason not to jump off a tall building?”

      1. Alex

        Ok, thanks for the clarification on the point. Guess I’m just naive in believing people (and companies, by extension) still care about the rest of their reputation :)

      2. flora

        An aside: Exactly why the practice of executive compensation in the form of stock options should be ended. imo.

  7. Kemal Erdogan

    The regulators could have looked the other way as they would normally do; my view is that this is tit for tat against the Apple’s tax bill,

  8. TomDority

    Deutsche Bank…they are synonymous with MERS?
    And, MERS was the nexus for creating bogus title chains and transferring mortgages into trusts to be diced into MBAs and securities without authority or proper transfer?
    MERs…allowing even non existent people to become officers of MERS to effectuate transfers of mortgage and title in a shell game.?
    MERS. ..defrauded every court house in the land of millions each and billions overall (except maybe Montgomery County Pennsylvania v MERS )?
    MERS/Deutsche Bank..which will now pay a fine using other people’s money as this is only a small cost of doing business……?
    Finance…..the new world order military weapon used against the smurfs and free people everywhere.
    Militarized finance to steal the land our for forefather’s fought for. ……they are going equally against native people’s as well.

Comments are closed.