WEBVTT - Deutsche Bank Settles $7.2 Billion Mortgage Pact (Audio)

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<v Speaker 1>Seven point two billion dollars. That's the price Doutsche Bank

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<v Speaker 1>will pay the US Justice Department to settle the case

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<v Speaker 1>over its handling of mortgage backed securities before two thousand

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<v Speaker 1>and eight. The mortgage investigation was among the bank's biggest

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<v Speaker 1>litigation risks. Justice initially wanted fourteen billion from Deutsche. The

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<v Speaker 1>bank also agreed to hire an outside monitor to review

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<v Speaker 1>its compliance with its pledge to provide consumer relief. If

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<v Speaker 1>you're counting, that brings the number of monitors that Deutsche

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<v Speaker 1>has to five the other supervised swaps, currencies, interest rates,

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<v Speaker 1>and sanctions. Our guest is Peter Handing, a professor at

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<v Speaker 1>Wayne State University. Peter Deutsche Bank admitted to making false

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<v Speaker 1>representations and omitting material information from disclosures to investors. Financial

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<v Speaker 1>institutions don't usually admit wrongdoing in these settlements. Could this

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<v Speaker 1>lead to other claims against Deutsche Bank. Well, certainly there

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<v Speaker 1>is going to be at least some risk for the

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<v Speaker 1>bank that these types of disclosures or these types of

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<v Speaker 1>statements that they have admitted to UH, and there's some

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<v Speaker 1>emails that are in there that as typically do embarrass

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<v Speaker 1>the bank. That could lead to some additional litigation risk,

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<v Speaker 1>but certainly not at the billion dollar level like it

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<v Speaker 1>was facing. And of course as a German bank, it

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<v Speaker 1>doesn't face the risk from a shareholder lawsuit that a

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<v Speaker 1>bank that is charted in the United States would face. So, um,

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<v Speaker 1>it's an embarrassment certainly for Deutsche Bank, and they have

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<v Speaker 1>admitted that they acted wrongfully, but I think that the

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<v Speaker 1>major blow here is behind them when they pay the

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<v Speaker 1>about three point one billion as the penalty and then

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<v Speaker 1>the rest as consumer relief. So, Peter, you know, we

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<v Speaker 1>tend to focus a lot on what you know, this

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<v Speaker 1>is the the Obama administration getting a lot of these

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<v Speaker 1>done towards the end. But this is really for dot

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<v Speaker 1>to bank a very good outcome, isn't it. Well, certainly

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<v Speaker 1>it's a good outcome in that it puts it behind

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<v Speaker 1>the bank. Can now put this in the rear view

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<v Speaker 1>mirror And also to the real hit the bank took

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<v Speaker 1>at least on the markets, was when that fourteen billion

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<v Speaker 1>dollar figure first came out. Um, that that's what the

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<v Speaker 1>Justice Department was asking for demanding as kind of its

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<v Speaker 1>opening salvo in the negotiations that drove down Deutsch's stock significantly.

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<v Speaker 1>And so really now the bank can say we have

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<v Speaker 1>this behind us. UM. You know, as June mentioned that

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<v Speaker 1>they have their fifth monitor. Uh. You know, at some

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<v Speaker 1>point they're going to have to emerge from this. One

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<v Speaker 1>would hope and be able to say that the costs

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<v Speaker 1>that are associated with these legacy cases is really over with,

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<v Speaker 1>so that they can try to move forward, Peter. In

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<v Speaker 1>the last few years, we've seen all the big banks

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<v Speaker 1>basically settle except for Barkleys and most Bank of America, JP,

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<v Speaker 1>Morgan Chase, City Group, Goldman Sachs, Morgan's, Downley Credit Suite,

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<v Speaker 1>and Deutsche Bank. Now why is Barkley's holding out? Do

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<v Speaker 1>you have any insight? Well, one reason maybe that the

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<v Speaker 1>Department of Justice's demand was too high. Given how much

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<v Speaker 1>Barclay's participated in the residential mortgage backed securities market UM,

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<v Speaker 1>the Justice Department has very much focused on UM any

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<v Speaker 1>type of resolution in the billions UM that would include

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<v Speaker 1>both consumer relief and a penalty. So I think there

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<v Speaker 1>was a concern on Barclay's part that the Department was

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<v Speaker 1>demanding too much, and the collateral consequences for Barclay's really

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<v Speaker 1>aren't all that significant. Barkley's took a big hit back

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<v Speaker 1>when it was the first one to settle the libor litigation. Uh,

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<v Speaker 1>it has really put almost all of this behind it.

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<v Speaker 1>And my guess is that at some point they just

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<v Speaker 1>decided to draw a line in the sand and say,

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<v Speaker 1>let's see what the Justice Department will do, especially under

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<v Speaker 1>a new administration. Will the new administration be as committed

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<v Speaker 1>to pursuing this case? Well, Peter, that's exactly what I

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<v Speaker 1>was going to ask you, you know, going with the

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<v Speaker 1>things that are unsettled and about we've got about thirty

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<v Speaker 1>seconds left, what do you expect the new administration is

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<v Speaker 1>going to do in regard to this sort of thing? Well,

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<v Speaker 1>I don't think. Well, I don't think we'll see anything

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<v Speaker 1>quickly because they've got to get settled in But a

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<v Speaker 1>few months out from now, I could certainly see settlement

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<v Speaker 1>talks where there will be a lower number, perhaps in

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<v Speaker 1>the millions rather than billions.