* Deutsche to fight shock $14 billion DoJ demand
* Bill could force bank to raise fresh capital
* German finance ministry expects "fair result"
(Recasts with market reaction)
By Arno Schuetze
FRANKFURT, Sept 16 Deutsche Bank said
it would fight a $14 billion demand from the U.S. Department of
Justice to settle claims it missold mortgage-backed securities,
a shock bill that raises questions about the future of Germany's
The claim against Deutsche, which is likely to trigger
several months of talks, far exceeds the bank's expectations
that the DoJ would be looking for a figure of only up to 3
billion euros ($3.4 billion).
The demand adds to the problems facing Deutsche Bank's
Chief Executive John Cryan, a Briton who has been in the job for
The bank only scraped through European stress tests in July
and has warned it may need deeper cost cuts to turn itself
around after revenue fell sharply in the second quarter due to
challenging markets and low interest rates.
Deutsche Bank shares, which have lost around half their
value this year, tumbled 7.6 percent to 12.10 euros in Frankfurt
on Friday, with analysts saying the bank may need to raise fresh
funds from investors or sell assets to shore up its capital
The cost of insuring Deutsche Bank debt against default rose
by around eight percent.
The bank, which employs around 100,000 people, said it
regarded the DoJ demand as an opening shot.
"Deutsche Bank has no intent to settle these potential civil
claims anywhere near the number cited," it said in a statement.
"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."
Analysts said that even a hefty reduction in the bill was
likely to weigh heavily on Deutsche Bank's finances.
"If the final bill is at 5 billion euros or more Deutsche
Bank will not be able to avoid a capital hike anymore," said
Ingo Frommen, banking analyst at LBBW.
Deutsche Bank's problems are likely to alarm political
leaders in Europe's largest economy and the home to the European
The German finance ministry said on Friday that the
government expected a "fair result" from the negotiations but
that the talks were a matter for the bank and the American
Finance minister Wolfgang Schaeuble took the unusual step of
voicing public support for the bank earlier this year and a
senior opposition figure said he expected the government to step
in as a last resort if needed.
"The question would be how much damage would it do to the
economy if the bank were to topple," said Green Party financial
spokesman Gerhard Schick.
The DoJ has taken a tough stance in settlement negotiations
with other banks, requesting sums higher than the eventual fine.
A recent European Union ruling that Apple must pay
up to 13 billion euros in taxes to the Irish government and the
forthcoming U.S. election could complicate Deutsche Bank's
efforts to whittle down the demand.
One of Deutsche's top 10 investors said he expected the bank
to have to pay 4-5.5 billion euros for the mortgages case. "But
because of the election campaign it may end up higher - at maybe
6 or 7 billion."
In 2014, the DoJ 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
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.
Deutsche Bank's settlement will comprise a different list of
recipients from the Goldman case, a source close to the matter
said, adding that the lender had already settled some claims
three years ago.
In late 2013, Deutsche Bank agreed to pay $1.9 billion to
settle claims that it defrauded U.S. government-controlled
Fannie Mae and Freddie Mac, America's biggest providers of
housing finance, into buying $14.2 billion in mortgage-backed
securities before the 2008 financial crisis.
LIST OF LEGAL PROBLEMS
A $14 billion fine, or even half that sum, would still rank
among one of the largest paid by banks to U.S. authorities in
Deutsche Bank has not said what it has set aside in
anticipation of a settlement over the sale and packaging of
resident mortgage-backed securities before 2008.
Its overall legal provisions stood at 5.5 billion euros at
the end of June, and according to a person close to the bank
2.5-3 billion of that had been reserved for the mortgages case.
Deutsche was once one of Europe's most successful players on
Wall Street. Like many of its peers, it has since faced a slew
of lawsuits that often trace back to the boom years before the
crash. Its litigation bill since 2012 has already hit more than
12 billion euros.
Claims filed by individuals, companies and regulators
against Deutsche, outlined in the bank's 2015 annual report,
relate to mis-selling of subprime loans and alleged manipulation
of foreign exchange rates or gold and silver prices. Other
lawsuits are for the rigging of borrowing benchmarks Libor and
Euribor, used to set the price of mortgages and derivatives.
In July, Chief Executive Cryan said he hoped to close the
four largest remaining litigation cases this year.
These are the mortgages and FX cases, an investigation into
suspicious equities trades in Russia and allegations of money
(Additional reporting by Suzanne Barlyn in New York, Paul
Carrel and Caroline Cropley in Berlin)