Business Essentials for Professionals


$14 Billion Demand from U.S. Authorities to be Fought by Deutsche Bank

$14 Billion Demand from U.S. Authorities to be Fought by Deutsche Bank
The $14 billion bill demand, a shock bill that raises questions about the future of Germany's largest lender would be fought by Deutsche Bank, the bank said. The demand for the fine was made  from the U.S. Department of Justice to settle claims the bank missold mortgage-backed securities.
The bank had expected that the DoJ would be looking for a figure of only up to 3 billion euros ($3.4 billion) but the claim against Deutsche, which is likely to trigger several months of talks, far exceeds the bank's expectations.
The problems for Deutsche Bank's Chief Executive John Cryan, a Briton who has been in the job for a year, have been compounded by the demand.

After revenue fell sharply in the second quarter due to challenging markets and low interest rates, the bank warned it may need deeper cost cuts to turn itself around as it only scraped through European stress tests in July.
With analysts saying the bank may need to raise fresh funds from investors or sell assets to shore up its capital ratios, Deutsche Bank shares, which have lost around half their value this year, tumbled 7.6 percent to 12.10 euros in Frankfurt on Friday.
There was a rise of about eight percent for the cost of insuring Deutsche Bank debt against default.
It regarded the DoJ demand as an opening shot, the bank, which employs around 100,000 people, said.
"Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited. The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts," it said in a statement.
Even a hefty reduction in the bill was likely to weigh heavily on Deutsche Bank's finances, analysts said.
"If the final bill is at 5 billion euros or more Deutsche Bank will not be able to avoid a capital hike anymore," said Ingo Frommen, banking analyst at LBBW.
Political leaders in Europe's largest economy and the home to the European Central Bank are likely to be alarmed by Deutsche Bank's problems.
While saying that the talks were a matter for the bank and the American authorities, the German finance ministry said on Friday that the government expected a "fair result" from the negotiations.
While a senior opposition figure said he expected the government to step in as a last resort if needed, finance minister Wolfgang Schaeuble took the unusual step of voicing public support for the bank earlier this year.
"The question would be how much damage would it do to the economy if the bank were to topple," said Green Party financial spokesman Gerhard Schick.
Requesting sums higher than the eventual fine, the DoJ has taken a tough stance in settlement negotiations with other banks.
Deutsche Bank's efforts to whittle down the demand could get complicated by the forthcoming U.S. election and a recent European Union ruling that Apple must pay up to 13 billion euros in taxes to the Irish government.

Christopher J. Mitchell

Markets | Companies | M&A | Innovation | People | Management | Lifestyle | World | Misc