Deutsche Bank is to pay $7.2 billion to the US for misconduct which contributed to the 2008 financial meltdown.
The settlement was announced on Tuesday by the US Department of Justice which said that it was the largest settlement reached so far concerning the conduct of a single entity contributing to the crisis.
"Deutsche Bank did not merely mislead investors: It contributed directly to an international financial crisis," US Attorney General Loretta Lynch said in a statement.
Prosecutors there said that the German lender had repackaged and sold residential mortgage-backed securities in 2006 and 2007. The widespread failure of these securities gave rise to bankruptcies in the financial sector in 2008, leading to the Great Recession.
Deutsche Bank admitted deceiving investors about the loans underlying the securities it sold, including claiming falsely that it had reviewed those loans.
Wage records had been blanked out to conceal borrowers’ true incomes. This masked their ability to repay their loans. The bank failed to inform investors that many of the loans had liens against them and some 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.
The bank has scrapped bonuses for its top execs for the second year in a row.
“Now that we have a clearer idea of the financial impact of the settlement with the U.S. Department of Justice and our performance for the year, we feel that tough measures are unavoidable,” the bank said in a memo to staff.
“This is especially true at a time when thousands of jobs are being cut and our shareholders are not receiving an annual dividend.”
The agreement divides the sum into a $3.1 billion civil penalty and a $4.1 billion contribution towards relief for borrowers and homeowners.
Other recent enforcement actions against major firms include a $5.3 billion settlement with Credit Suisse and an $864 million agreement with ratings agency Moody’s. This month a $4.3 billion settlement was reached with VW over the its emissions scandal and a $170 million settlement with 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.
