US slaps Deutsche Bank and Credit Suisse with $12.5bn toxic loan fines

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Deutsche Bank and Credit Suisse have agreed to pay a combined $12.5 billion (£10.2 billion) to settle a US probe into the alleged sale of toxic loans, ending months of uncertainty which has dragged on the European banking sector.

But UK giant Barclays has failed to reach a settlement over similar allegations and is being sued by the US government. It rejects the claim.

Deutsche, helmed by Yorkshireman John Cryan, has agreed in principle to pay $7.2 billion, comprising $3.1 billion in civil penalties and $4.1 billion set aside to help customers who lost out.

The figure is just more than half the $14 billion US authorities had originally been seeking from the lender.

Deutsche shares rose 4% today to €18.44 as investors breathed a sigh of relief. “They’ve got a reasonable deal but it’s not quite as good as they hoped,” St James’s Place chief investment officer Chris Ralph told the BBC.

Credit Suisse, led by former Prudential boss Tidjane Thiam, will pay $5.28 billion to resolve similar allegations, made up of a $2.48 billion penalty and $2.8 billion customer relief. Its shares have also been under pressure this year because of the threat of litigation.

Federal prosecutors have been investigating the banks over mortgage-backed securities sold in the run-up to the financial crisis, sales which were partly blamed for triggering the meltdown.

Deutsche, Credit Suisse and Barclays had been in negotiations with the Department of Justice for months over the wide-ranging probe but the pace of talks quickened in recent days as the Obama administration tried to put the issue to bed before the end of office.

Deutsche, which has a market cap of $25 billion, saw shares plummet when the Justice department said in September that the fine would be $14 billion.

This quarter Deutsche will take a $1.2 billion charge and Credit Suisse a $2 billion hit for the penalty. Deutsche added that the consumer relief fund, still being worked out, would not have an impact on this year’s results.

Barclays’ decision not to settle paves the way for a long-running court case with the Trump administration at the helm. Barclays said it considers the civil claim — which includes allegations of mail and wire fraud — to be “disconnected from the facts” and said it will defend the case “vigorously”.

RBS is also under investigation over similar allegations of selling toxic loans. But today’s lower-than-expected settlements helped to placate some investors. RBS shares rose 3.8p to 231.8p.

The US government has already settled with a number of US lenders, including JPMorgan which paid $13 billion, Citi which paid $7 billion and Bank of America which forked out $17 billion. Today struggling Italian bank Monte dei Paschi’s €20 billion bailout was approved.

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December 24, 2016 |
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