Deutsche Bank moves to reassure staff

Deutsche Bank has settled a case with the US Justice Department over toxic mortgages. Photo / 123rf

Deutsche Bank moved to reassure employees of its financial strength after reaching a $7.2 billion (NZ$10.5b) settlement with US regulators over toxic subprime debt, and said it found no evidence the firm had breached sanctions against Russia in a separate probe.

The lender, which saw its stock plunge this year amid legal concerns on multiple fronts, said in a memo to staff Friday that it doesn't expect the settlement to affect its credit rating or its ability to operate in the US, and it anticipates paying the coupons on all its debt instruments.

"By agreeing this settlement, we are removing a long-standing uncertainty from Deutsche Bank," and the lender won't need government support, the memo said. "We anticipated that the credit market will welcome the sentiment. We anticipate paying coupons on all of our instruments on time and in full." The German government didn't help negotiate with US authorities, it said.

The bank, said to be a creditor to US President-elect Donald Trump, doesn't believe it will receive preferential treatment after he takes office, according to the memo, which was seen by Bloomberg.

Deutsche Bank's shares rose and perceptions of its credit risk eased after the settlement, which was about half the initial demand of US$14b by the U.S. Department of Justice. The potential weakening of Deutsche Bank's capital position raised concerns over the bank's ability to pay coupons on some of its bonds and sent the stock plunging earlier in 2016.

Earlier Friday, Deutsche Bank and Credit Suisse Group AG agreed to pay a combined US$12.5b to resolve US investigations into sales of the toxic debt that fueled the financial crisis. S&P Global Ratings said it doesn't expect the settlement to affect Deutsche Bank's credit rating.

In the Russian mirror-trade affair, one of the issues remaining to resolve for Chief Executive Officer John Cryan, there is "no indication of a breach of sanctions," the memo said. However, an internal probe found "deficiencies" in the bank's systems and controls that are being addressed.

The lender is being investigated by US and UK authorities over whether its internal controls failed to catch transactions that may have moved billions of dollars out of Russia from 2012 to 2015, people familiar with the matter have said. The bank has dismissed several employees accused of carrying out up to US$10b in suspicious transactions, according to people familiar with the matter, and has shut its securities business in Russia.

"It's very good news for Deutsche" if they haven't breached sanctions, said Michael Seufert, an analyst at Norddeutsche Landesbank. "US authorities are very sensitive when it comes to the breach of sanctions," he said, citing the fines paid by France's BNP Paribas SA two years ago.

"The actual capital hit to Deutsche was modest" from the U.S. settlement, said Kyle Kloc, a portfolio manager at Fisch Asset Management who holds Deutsche Bank bonds.

-With assistance from Katie Linsell and Alastair Marsh