Deutsche, Credit Suisse to Compensate Consumers Post-Crisis
FRANKFURT, Germany – Nine years after the collapse of the U.S. housing market sent shockwaves through the global economy, two European banks have agreed to offer American homeowners and borrowers billions of dollars’ worth of help under a settlement related to the sale of risky securities that helped spark the 2008 crisis.
Deutsche Bank and Credit Suisse said Friday they agreed to the tentative settlements with the U.S. Justice Department over their dealings in mortgage-backed bonds.
Deutsche Bank, Germany’s biggest, agreed to pay $7.2 billion – $3.1 billion in fines and $4.1 billion in consumer relief. That relief could include easier terms on loan repayments terms for homeowners and borrowers.
Neither Deutsche nor Credit Suisse, which agreed to a similar settlement under which it would pay $5.3 billion, including $2.8 billion in consumer relief, provided details on what the consumer compensation would entail.
Previous settlements related to mortgage-backed securities have meant banks reduced loan amounts and interest for some borrowers, and donated money to community development groups, all under the supervision of appointed monitors who track compliance.
Housing advocates however have complained that banks have claimed credit toward the settlement amounts for activities they would have undertaken anyway.
The settlements, which focus on activities in 2005-2007, revisit an ugly chapter of the global financial crisis, in which banks bundled mortgages from people with shaky credit into bonds whose risks many investors did not understand. When the mortgages went into default as the U.S. real estate market collapsed, so did the bonds, spreading losses and panic through the financial system.
The Deutsche Bank agreement lessens the financial cloud over the bank’s shares, since it had earlier this year said it might have to pay as much as $14 billion. The bank has been struggling to put expensive litigation from past misconduct behind it. It said it would take a $1.17 billion hit to its fourth-quarter earnings arising from the civil penalty. CEO John Cryan is putting the bank through a tough restructuring in an attempt to improve profitability and strengthen its finances.
Deutsche Bank’s share price, which had initially risen strongly, closed up only 0.3 percent at 17.81 euros, while Credit Suisse’s ended 0.9 percent lower at 15.19 Swiss francs.
News of the settlements came after the Justice Department sued Britain’s Barclays Bank, accusing it and its employees of misrepresenting the quality of the loans they sold to tens of thousands of investors. The investors, which included credit unions, pension plans and university endowments, lost billions of dollars, the Justice Department said.