Deutsche Bank has confirmed that the US Department of Justice (DoJ) has asked it to pay $14bn (£10.58bn) to settle civil claims. These are related to the German bank's issuance and underwriting of residential mortgage-backed securities (RMBS) and related securitisation activities during the 2005-2007 period.
In a statement, the German bank said the DoJ has asked the bank to submit a counter proposal. "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," the bank said.
According to the Financial Times, Deutsche Bank insiders are hoping that the claim settlement will be similar to that of Goldman Sachs. The American multinational bank had initially faced a penalty of $15bn from the DoJ to settle claims relating to mortgage security mis-selling. However, the claim was settled with the bank paying about $5bn earlier this year.
The report on Deutsche Bank comes just days after US politicians showed anger over the EU's decision to penalise Apple with €13bn (£11.04bn) in back taxes in Ireland. It is suspected that Deutsche could be a victim of US revenge against Europe.
Deutsche, which posted huge losses in 2015, has lost half of its market value in the past year. It is currently one of the weakest banks in Europe in terms of market capitalisation. There are hence concerns as to how the German lender will cope with such a huge penalty.
The bank's litigation reserves as of 30 June stand at €5.5bn. While it has not disclosed how much it has set aside for this particular settlement, it has said that the total reserve will be raised before the end of 2016.
Commenting on the penalty, Simon Herrmann, an analyst with stock market research group Wise-owl.com, said: "I doubt that the final amount will be $14bn ... and it is yet unclear how much of this fine will be payable in actual cash."
He added: "Deutsche's financial situation and reputation has worsened since the financial crisis and a $14bn settlement claim would have a severe impact, even though the bank has set aside money for mortgage investigations as part of their broader legal provisions."