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Issues of Risky Mortgages to be Settled for $7.2 Billion by Deutsche Bank and U.S. Department of Justice

Issues of Risky Mortgages to be Settled for $7.2 Billion by Deutsche Bank and U.S. Department of Justice
In relation to the sale of toxic mortgage securities in the run-up to the 2008 financial crisis, $7.2 billion settlement with the U.S. Department of Justice has been finalized by Deutsche Bank, the government agency announced recently.
The department said in a statement that with relation to a single entity misleading investors in residential mortgage-backed securities, Deutsche's agreement represents the largest resolution for such conduct by a company. Compared to the $7 billion paid by Citigroup to federal and state authorities in 2014, this settlement was much higher.
"Deutsche Bank did not merely mislead investors: it contributed directly to an international financial crisis," Attorney General Loretta Lynch said in the statement.
The bank's conduct between 2005 and 2007 was "unacceptable" and fell short of standards, John Cryan, Deutsche's chief executive, said. The bank had improved standards and exited many of the underlying activities, he said.
The same announcement was made by the Frankfurt-based bank which said that an agreement in principle with U.S. authorities had been reached on Dec. 23.
After the bank acknowledged the Justice Department made an opening demand of $14 billion, its stock price hit a record low in September.
Before turning to Deutsche and other European banks, in relation to the shoddy securities that contributed to the U.S. housing market collapse and financial crisis, the Justice Department reached $46 billion in settlements with U.S. banks.
While some other banks paid more than Deutsche, such settlements however also included wrongdoing by institutions that they had acquired during the crisis. For example, fines for Merrill Lynch and Countrywide Financial were covered when the Bank of America Corp agreed to pay $16.7 billion. Misconduct by Washington Mutual and Bear Stearns was covered in JPMorgan Chase & Co’s settled for $13 billion.
Deutsche Bank will provide $4.1 billion in consumer relief to homeowners, borrowers and communities harmed by its practices and will pay a civil monetary penalty of $3.1 billion as part of its deal.
How the bank made false and misleading representations to investors about the loans underlying billions of dollars worth of mortgage securities issued by the bank in 2006 and 2007 would be issued by it in the form of a statement under the agreement.
According to the statement of facts, a supervisor is quoted as warning a senior trader that a loan originator would underwrite loans to anyone with "half a pulse" in May 2006.
Deutsche Bank, among others, "tolerate[d] misrepresentation" from originators who accepted blacked out pay stubs to state that borrowers had higher incomes, the supervisor also said that month.
Deutsche Bank concealed second liens on properties and also knew appraisals were inflated.
the Justice Department sued Barclays Plc and two former executives for fraud for allegedly deceiving investors about the quality of loans underlying tens of billions of dollars of the securities and Zurich-based Credit Suisse announced that it had agreed in principle to a $5.3 billion settlement.
Separately, in a move that will be announced on Wednesday, Spiegel reported that Deutsche Bank will slash bonuses for senior employees by about 90 percent.

Christopher J. Mitchell

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