NEW YORK/FRANKFURT (Reuters) - Deutsche Bank (DBKGn.DE) has agreed to a $7.2 billion settlement with the U.S. Department of Justice over its sale and pooling of toxic mortgage securities in the run-up to the 2008 financial crisis.

A logo is pictured on the Deutsche Bank building in Geneva, Switzerland, October 11, 2016. REUTERS/Denis Balibouse

The agreement in principle, announced by Deutsche Bank’s Frankfurt headquarters early Friday morning, offers some relief to the German lender, whose stock was hit hard in September after it acknowledged the Justice Department had been seeking nearly twice as much.

It also highlights the Justice Department’s recent efforts to hold European banks accountable for shoddy securities that contributed to the U.S. housing market collapse.

The department sued Barclays PLC (BARC.L) on Thursday over similar claims, after having reached $46 billion in settlements with U.S. banks over the last three years.

Deutsche Bank does not plan a capital increase to cover the settlement, a person close to the bank said. The lender expects the agreement to be finalized in early 2017, before President-elect Donald Trump takes office, said the source, who spoke on the condition of anonymity.

Deutsche does expect to record a pretax charge of about $1.17 billion in its fourth quarter because of the civil monetary penalty, according to its press release.

As part of the agreement, Deutsche Bank would pay a civil monetary penalty of $3.1 billion and provide $4.1 billion in consumer relief, such as loan forgiveness. The bank cautioned that there is “no assurance” the two sides will agree on the final documents.

A spokesman for the Justice Department declined to comment.

Settling the mortgage-securities case would mean Deutsche Bank has shaken off one legal headache. Three major probes remain.

Deutsche faces investigations into the alleged manipulation of foreign exchange rates, suspicious equities trades in Russia, as well as alleged violations of U.S. sanctions on Iran and other countries.

Since 2012, Deutsche Bank has already paid more than 12 billion euros for litigation, including a deal with U.S. mortgage-finance giants Fannie Mae and Freddie Mac.

Deutsche Bank’s “troubling practices” were widespread, including when trader Greg Lippmann told colleagues that many home loans the bank was packaging into securities were “crap” and “pigs,” according to a 2011 U.S. Senate subcommittee report.

Lippmann has declined to comment on the report.

There has been fear among investors, companies and regulators that the penalties are too much for Deutsche Bank to withstand.

Its shares plunged to a record low of 9.90 euros in September, after the bank confirmed the Justice Department was demanding $14 billion. The stock has recovered substantially, but is down from the beginning of 2016.

OTHER BANKS

The Justice Department is still pursuing mortgage allegations against other lenders in addition to Barclays.

Credit Suisse Group AG (CSGN.S) is in late-stage negotiations and has resisted a demand by the agency that it pay between $5 billion and $7 billion over its sale of mortgage securities, sources have said.

Royal Bank of Scotland Group PLC (RBS.L), Wells Fargo & Co (WFC.N), UBS Group AG (UBSG.S) and HSBC (HSBA.L) are also under investigation, according to company disclosures.

U.S. banks have paid tens of billions of dollars over the past three years to settle with U.S. authorities over misleading investors about the quality of mortgages underlying securities.

In 2013, JPMorgan Chase & Co (JPM.N) agreed to pay $13 billion. The following year, Bank of America Corp (BAC.N) agreed to pay $16.65 billion, while Citigroup (C.N) cut a deal for $7 billion. In February this year, Morgan Stanley (MS.N) agreed to pay $2.6 billion, and in April, Goldman Sachs Group Inc (GS.N) negotiated a $5 billion deal.

Deutsche is not the first bank to announce a settlement amount before both sides have agreed on the final documentation. Morgan Stanley disclosed its agreement a year before it was finalized and formally announced.</s>Deutsche Bank has cemented a $7.2 billion settlement with the Department of Justice for selling toxic mortgage-backed securities in the years before the market meltdown of 2008.

The DOJ said Tuesday that the settlement -- which includes a $3.1 billion civil penalty -- is the largest of its kind levied by the department.

The other $4.1 billion included in the settlement is earmarked for "relief to underwater homeowners, distressed borrowers and affected communities," DOJ said in a statement. That includes issuing loan forgiveness and forbearance and providing funding for affordable housing across the U.S., to be overseen by an independent monitor.

"Deutsche Bank did not merely mislead investors: It contributed directly to an international financial crisis," Attorney General Loretta Lynch said.

"Our conduct in this matter falls short of our standards and is unacceptable," said Deutsche Bank (DB) CEO John Cryan. "We apologize unreservedly for it. We have subsequently exited many of the underlying activities and comprehensively improved our standards."

The deal was first announced in December, but Tuesday marked the formal closure of the settlement.

The DOJ has spent the years since the 2008 financial crisis going after banks that were involved in dicey trading practices. Deutsche Bank (DB), like many of its competitors, was found to have packaged up poor-quality mortgage bonds into securities that looked like trustworthy investments.

The DOJ has levied more than $60 billion in fines over the toxic mortgages that plunged the world into a recession back in 2008. Among the other banks fined include JP Morgan (JPM), $13 billion; Bank of America (BAC), $16.7 billion; Goldman Sachs (GS), $5.1 billion; and Citigroup (C), $7 billion.</s>Europe’s biggest lender Deutsche Bank and the US Department of Justice have reached an agreement over its sale of toxic mortgage-backed securities before the 2008 financial crisis, according to the government agency.

Deutsche has agreed to pay a $3.1 billion civil penalty and provide $4.1 billion in consumer relief to homeowners, distressed borrowers, and affected communities, the federal agency said, confirming the details furnished by the bank last December.

“This resolution holds Deutsche Bank accountable for its illegal conduct and irresponsible lending practices, which caused serious and lasting damage to investors and the American public,” said Attorney General Loretta Lynch in a statement.

She stressed the bank had not merely misled investors but had contributed directly to an international financial crisis.

Deutsche's agreement is the biggest penalty ever paid under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), according to the department.

The settlement is higher than the $7 billion paid by Citigroup to federal and state authorities three years ago. Another bank accused of selling toxic mortgage securities, Credit Suisse, agreed to a $5.2 billion settlement with US authorities.

Deutsche Bank’s conduct between 2005 and 2007 fell short of standards and was “unacceptable,” according to CEO John Cryan.

The German bank will admit to making “false representations and omitting material information from disclosures to investors about the loans included in residential mortgage-backed securities sold by the bank” as a part of the agreement sealed after months of negotiations.

READ MORE: Washington proposes $7bn fine on Credit Suisse in mortgage claims



Deutsche Bank ADR-listedshares on the New York Stock Exchange closed 3.2 percent lower on Tuesday.</s>NEW YORK: Deutsche Bank has signed a US$7.2 billion settlement with the U.S. Department of Justice over its sale and pooling of toxic mortgage securities in the run-up to the 2008 financial crisis, the government agency said on Tuesday.

The Frankfurt-based bank announced it had reached the agreement in principle with U.S. authorities on Dec. 23. The agreement offered some relief to the German lender, whose stock price was hit hard in September after it acknowledged the Justice Department had been seeking nearly twice as much.

As part of the final agreement, Deutsche Bank will pay a civil monetary penalty of US$3.1 billion and provide US$4.1 billion in consumer relief to homeowners, borrowers and communities harmed by its practices.</s>US officials on Tuesday formally announced a $7.2 billion settlement with the German lender Deutsche Bank, adding to a flurry of last-minute corporate resolutions by the outgoing administration of President Barak Obama.

The announcement by the US Department of Justice came almost a month after the terms of the settlement had been unveiled by the bank itself. In a statement, the department said the resolution was the largest settlement so far over the conduct of any single entity contributing to the 2008 financial meltdown.

"Deutsche Bank did not merely mislead investors: It contributed directly to an international financial crisis," US Attorney General Loretta Lynch said in a statement.

The widespread failure of complex securities that re-bundled poor quality mortgages caused successive crises and bankruptcies in the financial sector in 2008, leading to the Great Recession.

In a civil case, US prosecutors said the bank had contributed to the 2008 financial meltdown by misleading investors as it repackaged and sold residential mortgage-backed securities between 2006 and 2007.

The bank will pay a $3.1 billion civil penalty and contribute $4.1 billion to support relief for borrowers and homeowners. The bank admits to deceiving investors about the loans underlying the securities it sold, including by falsely claiming that the loans had been reviewed.

Bank employees accepted blocked out pay stubs which concealed borrower incomes and thus hid their true ability to pay; failed to inform investors that a significant share of borrowers had liens on the properties; and cleared loans that the bank's diligence team had attempted to block or that were based on fraudulent property appraisals.

"Deutsche Bank enriched itself by paying reduced prices for risky loans while representing to investors valuation metrics based on appraisals the bank knew to be inflated," the Justice Department statement said.

Other enforcement actions against major companies announced since December 23, include a $5.3 billion settlement with Credit Suisse and an $864 million settlement with the ratings agency Moody's, both over the mortgage crisis, as well as a $1 billion action against the Japanese maker of defective airbags Takata.

The Justice department this month also announced a $4.3 billion settlement over Volkswagen's emissions cheating scandal and $170 million settlement with the British aerospace and power systems contractor Rolls Royce, part of an $800 global settlement with British, US and Brazilian authorities over allegations of corruption in at least six countries around the world.</s>Deutsche Bank has agreed to pay the US Department of Justice $7.2bn (£6bn) over misleading investors with sales of mortgage-backed securities in the run-up to the financial crisis.

The bank provisionally agreed the settlement amount in December, but it was only finalised today.

Deutsche Bank will pay a civil penalty of $3.1bn and provide $4.1bn in consumer relief, such as loan forgiveness, as part of its payment.

Read more: Deutsche Bank chief blames regulation for lack of banking innovation

“This $7.2bn resolution – the largest of its kind – recognises the immense breadth of Deutsche Bank’s unlawful scheme by demanding a painful penalty from the bank, along with billions of dollars of relief to the communities and homeowners that continue to struggle because of Wall Street’s greed,” said principal deputy associate attorney general Bill Baer.

“The department will remain relentless in holding financial institutions accountable for the harm their misconduct inflicted on investors, our economy and American consumers.”

Read more: Deutsche Bank's head of financial crime quits after just six months

Settling the mortgage-securities case would mean Deutsche Bank has shaken off one legal headache – however, other major probes remain.

Deutsche faces investigations into suspicious equities trades in Russia, as well as alleged violations of US sanctions on Iran and other countries.</s>Europe's biggest lender Deutsche Bank and the US Department of Justice have reached an agreement over its sale of toxic mortgage-backed securities before the 2008 financial crisis, according to the government agency.Deutsche hasto homeowners, distressed borrowers, and affected communities, the federal agency said, confirming the details furnished by the bank last December.This resolution holds Deutsche Bank accountable for its illegal conduct and irresponsible lending practices, which caused serious and lasting damage to investors and the American public," said Attorney General Loretta Lynch in a statement.She stressed the bank had not merely misled investors but had contributed directly to an international financial crisis.Deutsche's agreement is theThe settlement is higher than the $7 billion paid by Citigroup to federal and state authorities three years ago. Another bank accused of selling toxic mortgage securities, Credit Suisse, agreed to a $5.2 billion settlement with US authorities.Deutsche Bank's conduct between 2005 and 2007 fell short of standards and was "unacceptable," according to CEO John Cryan.The German bankDeutsche Bank ADR-listedshares on the New York Stock Exchange closed 3.2 percent lower on Tuesday.</s>Deutsche Bank agreed on Tuesday to pay $7.2 billion for misleading investors in its sale or residential mortgage-backed securities.



The U.S. Justice Department said the settlement requires the bank to pay a $3.1 billion civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act.

It will also provide $4.1 billion in relief to underwater homeowners, distressed borrowers and affected communities.



"This resolution holds Deutsche Bank accountable for its illegal conduct and irresponsible lending practices, which caused serious and lasting damage to investors and the American public," Attorney General Loretta Lynch said in a release.



This story is developing. Please check back for further updates.

Click here for the latest on the markets.</s>Deutsche Bank's chief executive apologized on Tuesday for the bank's selling and pooling of toxic mortgage securities in the run-up to the 2008 financial crisis, which prompted a $7.2 billion settlement with the United States.

"Our conduct in this matter, which occurred from 2005 to 2007, falls short of our standards and is unacceptable. We apologize unreservedly for it," John Cryan, who took over as CEO in July 2015, wrote in an emailed statement.

"We have subsequently exited many of the underlying activities and comprehensively improved our standards. As we enter 2017, we are pleased to have resolved this matter."

The U.S. Department of Justice said earlier that Deutsche Bank would pay a civil monetary penalty of $3.1 billion and provide $4.1 billion in consumer relief to homeowners, borrowers and communities harmed by its practices.</s>Deutsche Bank has reached a final settlement with the US Department of Justice (DOJ) to resolve litigation related to its sales of mortgage-backed securities before the 2008 financial crisis.

The bank has agreed to pay a total of US$7.2bn and admitted to misleading investors the DOJ announced, comprising a US$3.1bn civil penalty plus US$4.1bn in relief to homeowners. Deutsche Bank had indicated last month that it had reached an agreement in principle, relieving investors who sold the bank’s shares last September when a penalty as high as US$14bn had been suggested.

“This resolution holds Deutsche Bank accountable for its illegal conduct and irresponsible lending practices, which caused serious and lasting damage to investors and the American public,” Attorney General Loretta Lynch said in a written statement.

“Deutsche Bank did not merely mislead investors: It contributed directly to an international financial crisis.”

Deutsche Bank admitted to making false representations and omitting material information from disclosures to investors about the loans included in residential mortgage-backed securities that it sold. “Our conduct in this matter, which occurred from 2005 to 2007, falls short of our standards and is unacceptable,” said its chief executive officer (CEO) John Cryan.

“We apologise unreservedly for it. We have subsequently exited many of the underlying activities and comprehensively improved our standards. As we enter 2017, we are pleased to have resolved this matter.”

Deutsche Bank still faces separate investigations into whether it manipulated foreign currency rates and precious metals prices and whether it facilitated transactions that helped investors illegally transfer dollars out of Russia.

The DOJ imposed fines totalling US$46bn on US banks for their role in misleading investors when selling mortgage-backed securities, including US$16.7bn on Bank of America, which also covered Merrill Lynch and Countrywide Financial. And US$13bn on JPMorgan Chase, including misconduct by Washington Mutual and Bear Stearns. Other penalties included Citigroup (US$7bn) Goldman Sachs (US$5.1bn) and Morgan Stanley (US$3.2bn).

It then turned its attention to Deutsche and other European banks. Credit Suisse announced that it had agreed in principle to a US$5.3bn settlement. Last month the DOJ sued Barclays and two former executives on civil charges of fraud in the sale of mortgage-backed securities before 2008.
Deutsche Bank agrees to a $7.2 billion settlement with the U.S. Department of Justice over its sale and pooling of toxic mortgage securities in the years leading up to the 2008 financial crisis.