16 September 2016 by lberuti
A statement from DB ( Deutsche Bank AG ) last night revealed that the Department of Justice has them asked for a mind-boggling $14Bln to settle an investigation into their mortgage-backed security business. The DoJ’s opening salvo, which dwarfs the $9Bln fine imposed a few years ago on BNP, could all but sink DB. The bank has legal provisions on €5.5Bln, but only €4Bln are earmarked to cover regulatory enforcement, and they also include claims that trades by Russians broke sanctions. DB said they expect to settle for a much lower amount, but, if the DoJ decides to take a hard stance with an institution believed by many regulators to be among the worst offenders, its market capitalisation is now less than €17Bln and it means there is a limit to issuing material amounts of capital. Investors therefore pushed DB’s senior debt 5-year risk premium 15bps wider to 205bps and its subordinated debt 5-year risk premium 32bps wider to 425bps. Press articles pointing to the case being part of potential retaliation by the US over the EU’s tax demand on Apple did not help either, and there was spill over to banks that are yet to settle similar cases with the DoJ. CS (Credit Suisse Group AG) and RBS (Royal Bank of Scotland Plc) were among today’s worst performers.
Meanwhile, the broader credit market struggled again for direction, even if the pressure on financials definitely gave it a negative tone. All credit indices nudged a tad wider, despite the roll taking place next Tuesday.