Analysts and shareholders hope that Deutsche Bank will be able to find a common language with the American side.
News of a possible fine of $14 billion from the U.S. Department of justice for the illegal actions of Deutsche Bank mortgage securities came as a surprise to the market. Investors hurried to get rid of just starting to recover shares of Germany’s largest Bank, which already lost about 50% since the beginning of this year. But while the fact of imposition of penalty did not surprise anyone, its size more than twice exceeded the expectations of most analysts, and the Deutsche Bank, previously reserved €5.7 billion on litigation (with the option to increase amount by €1.7 billion, if necessary).
Some of the major banks have already gone through this painful process and pay billions of dollars in fines. The largest of them occurred in the Bank of America — in 2014, the Bank parted with $17 billion in favor of the Department of justice and the Federal housing Agency of the United States. A similar fine ($12 billion) threatened and Citibank, but in 2014, the Bank’s management has managed through negotiations to lower the total amount to $7 billion Goldman Sachs even luckier — originally stated $15 billion, the parties agreed on the final fine of $5 billion earlier this year.
Analysts and shareholders hope that Deutsche Bank will be able to find a common language with the American side. Research conducted by J. P. Morgan show that the average penalty paid is 4.5% of the total issued banks mortgage-backed securities between 2005 and 2007. According to reports, Deutsche Bank at this time produced $71 billion Thus, we can expect that the average amount of penalty a Bank should be around $3.2 billion.
The index of tier I capital at Deutsche Bank and currently is significantly inferior to major competitors, while at the level of 10.8%. Calculations show that the amount of the fine in excess of €4 billion, will require an infusion of new equity from shareholders. Given the high politicization of transatlantic negotiations in the eyes of the German inhabitants, there is a probability of involvement of the German authorities to help the largest Bank of the country. In contrast to the case of BNP Paribas, has not received support from the national government in case of violation of us sanctions and in the end paid $ 9 billion to the Treasury of the United States, experts believe that Deutsche Bank more likely, even despite the fact that today Angela Merkel has publicly stated that he would not comment on the decision of the U.S. Department of justice on 14-billion fine. German Finance Minister has also distanced himself from the proceedings, stating that he hoped for “an honest and fair outcome of the negotiations, stressing that this matter relates only to Deutsche Bank and the U.S. Department of justice.
In addition to a fine for mortgage fraud, Deutsche Bank will also have to answer the queries of the regulators in several cases of manipulation of the market price of interest rate and precious metals. Even more unpredictable is the case of suspicion of money laundering from Russia with the help of “mirror”transactions. In the absence of precedents of such proceedings, the amount of the fine, according to experts, can range from less than $1 billion to more than $4 billion.
Deutsche Bank has extensive experience of dealing with the authorities on various charges, paying them a total of more than $10 billion in fines over the past many years, which gives optimists, expecting a positive outcome this time, the opportunity to invest in securities of the Issuer to attractive levels. Bolder investors will pay attention to stocks which are traded on an absolute historical lows, while conservative lenders interest yield 10% in Euro and 12% in dollars that offer bonds of Deutsche Bank.
