Revenge on the Street – Deutsche Bank Fined for Mortgage Backed Securities


Another victim on Wall Street and this time its the German Deutsche Bank. On December 21st, in an almost identical case to JP Morgan, Deutsche Bank agreed to pay $1.9 billion to settle claims that it had misled Fannie Mae and Freddie Mac regarding the quality of the loans it had used to bundle into mortgage backed securities prior to the financial crisis of 2008. Here is a panel on Bloomberg discussing this fine in more detail.

The difference between this case and the JP Morgan fine I had discussed in an earlier post is that whereas JP Morgan was fined by the Department of Justice, Deutsche Bank was fined by the Federal Housing Finance Agency (FHFA). Since September of 2011, the FHFA has been on a suing spree and alleged 18 banks and financial institutions with committing the same wrongdoings as Deutsche Bank; misleading Fannie Mae and Freddie Mac regarding the creditworthiness of the mortgages it had sold to them.

Now I’m sure there are some of you out there who have no clue what Fannie Mae and Freddie Mac is. I’ll admit, when I first heard about them, I thought they were a brand of Mac and Cheese. You know I love my explanatory videos for you guys. So before we continue, here is a brief breakdown of Fannie Mae and Freddie Mac.

Of the 18 institutions that the FHFA sued, so far it has settled with only 6 of them. But. as stated in the Bloomberg video, more and more of these institutions are now looking to pay their fines, clear their names and look to the future without any worries for the past. That is exactly what was being discussed in the Bloomberg panel and what Jurgen Fitschen and Anshu Jain, Co-Chief Executive Officers of Deutsche Bank discussed in their recent statement where they said:

“Today’s agreement is another step in our efforts to resolve the Bank’s legacy issues, and we intend to make further progress in this regard throughout 2014”

Call me crazy, but I believe that Deutsche Bank were relieved to have put this whole deal behind them for such a meager amount compared to the whopping $13 billion that JP Morgan had to pay to the Department of Justice. In fact, maybe a bottle of Jagermeister was opened in Frankfurt that night.

Of course, in addition to the cases regarding mortgage backed securities in 2008, there is also the cases surrounding the LIBOR scandal, which I will get to in another post. If one thing is for certain, it is that with 12 institutions still being sued by the FHFA and with more and more of them looking erase their past and approach the future with a clean slate, expect more of these settlements to be in the headlines in the upcoming months.

“In the subprime mortgage industry, bankers handed out iffy loans like candy at a parade because such loans meant revenue and, hence, bonuses for executives in the here-and-now.”
-Thomas Frank

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