Deutsche Bank settles US mortgage lawsuit regarding Fannie and Freddie

Deutsche Welle, 20 December 2013

Deutsche Bank, the litigation-laden lender with new management seeking a "change in culture," has settled a court case with the US authorities. The bank will dole out $1.9 billion to Fannie May and Freddie Mac.

Germany's biggest lender on Friday cleared one of its outstanding court cases, settling with the US Federal Housing Finance Agency (FHFA) and agreeing to pay a combined $1.9 billion (roughly 1.4 billion euros) in compensation.

The FHFA was mediating on behalf of state-owned US mortgage lenders Freddie Mac and Fannie May, which were resuced with taxpayer money in the aftermath of the 2008 financial crisis. Deutsche Bank was accused of failing to properly disclose the risks hidden in mortgage-backed securities it sold to the US Banks between 2005 and 2007, charges it had publicly denied prior to the settlement.

"Deutsche Bank announced today that it has reached an agreement to resolve its residential mortgage-backed securities litigation with the FHFA as conservator for Fannie Mae and Freddie Mac," the bank said in a statement, describing the case as the largest mortgage-related litigation it faced.

The lion's share of the settlement was due to Freddie Mac. Deutsche Bank's new management duo is under pressure from shareholders to turn the company's image around amid several lawsuits.

Cleaning house

The FHFA brought similar lawsuits against a total of 17 lenders on behalf of Fannie May and Freddie Mac; JPMorgan Chase and Swiss lender UBS have already reached similar settlements. "Fannie and Freddie" were two of the hardest-hit lenders when housing prices began to fall and homeowners began to default on their mortgages, turning many of these securities based on a bundle of home mortgages into toxic assets.

"Today's agreement marks another step in our efforts to resolve Deutsche Bank's legacy issues, and we intend to make further progress in this regard throughout 2014," co-chief executives Jürgen Fitschen and Anshu Jain said in a joint statement. "We have exited the mortgage businesses that gave rise to these claims and have further improved our controls."

Deutsche Bank is expected to reach similar settlements with US and UK regulators over alleged manipulation of the Libor and Euribor benchmark interest rates used in the financial sector at some point next year.

Deutsche Bank, whose last quarterly report took a litigation-related hit, paid Friday's settlement with part of a 4-billion-euro war chest set aside for outstanding cases: "No material additional reserves will be taken for this settlement," the bank said.

msh/jlw (AFP, dpa, Reuters)