Deutsche Bank says it won’t pay £10.6bn fine to settle US mortgage investigation

The German-based bank is among many financial institutions investigated over dealings in discreditable mortgages in the run-up to the 2008 financial crisis

Deutsche Bank's headquarters in Frankfurt, Germany (Getty)

Shares in Deutsche Bank plunged as the lender said it had no intentions of paying the $14 billion (£10.6bn) fine sought by the US Department of Justice to settle civil claims regarding its handling of mortgage-backed securities that contributed to the 2008 financial crisis.

The German-based bank is among many financial institutions investigated over dealings in discreditable mortgages in the run-up to the financial crisis. The government has accused the banks of misleading investors about the quality of their loans.

“Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited. The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts,” Deutsche Bank said in a statement.

The $14 billion fine is more than triple what some Bloomberg analysts estimated.

Deutsche Bank emphasised that negotiations with the Department of Justice have just started and has confirmed it had been invited to submit a counter proposal.

The news of the fine, first reported by the Wall Street Journal, hit Deutsche Bank shares which dropped by nearly 9 per cent in late trading.

Royal Bank of Scotland dipped 5 per cent – pushed down by fears that it could also receive a whopping fine from the Department of Justice.

Other European lenders probed in relation to residential mortgage-backed securities have also shed two or three per cent, in a new bout of jitteriness about the banking sector.

Deutsche Bank previously thought that a settlement between $2 billion and $3 billion would be fair, as it had already paid $1.9 billion in 2013 to resolve similar claims, according to WSJ.

The Department of Justice has taken a tough stance in settlement negotiations with other banks, requesting sums higher than the eventual fine.

In 2014, it asked Citigroup to pay $12 billion to resolve an investigation into the sale of shoddy mortgage-backed securities, sources said. The fine eventually came in at $7 billion.

In a similar case, rival Goldman Sachs agreed in April to pay $5.06 billion to settle claims that it misled mortgage bond investors during the financial crisis.

The news comes at a difficult time for Deutsche Bank.

The German lender has lost about 43 per cent of its market value this year. Net income decreased to €18 million (£15m) from €796 million a year earlier, Deutsche Bank announced in July.

John Cryan, Deutsche Bank chief executive has been cutting risky assets, freezing dividend payments and eliminating about 9,000 staff to boost capital levels.

In June, the International Monetary Fund (IMF) said that of the banks big enough to bring the financial system crashing down, Deutsche Bank was the riskiest.

Additional reporting by AP and Reuters