Deutsche Bank, Credit Suisse settle US probes

Agree to pay a combined $12.5 bn to resolve investigations into toxic debt sale

Deutsche Bank AG and Credit Suisse Group AG agreed to pay a combined $12.5 billion to resolve US investigations into sales of the toxic debt that fuelled the financial crisis, putting behind them a major dispute that had weighed on their shares and raised questions about their turnaround plans.

Deutsche Bank will pay $7.2 billion and Credit Suisse agreed to a $5.3 billion deal, the banks said in separate statements early Friday. Their announcements came hours after Barclays Plc, which is being probed in a related case, was sued for fraud Thursday by the Justice Department after it balked at paying the amount the government sought in negotiations.

The Obama administration is pressing to wrap up investigations of Wall Street firms for creating and selling the subprime mortgage bonds that fuelled the 2008 financial crisis. Before the two deals on Friday, authorities had already extracted more than $46 billion from six US financial institutions over their dealings in mortgage-backed securities. Bank of America, which had the largest such settlement, agreed to pay $16.7 billion over bonds that were worth four times those of Deutsche Bank.

“The settlements are reducing a major uncertainty for the banks,” said Raimund Saxinger, a fund manager at BHF Bank. Deutsche Bank rose 3.1 per cent at 10:28 am in Frankfurt, paring losses this year to 19 per cent. Credit Suisse fell 0.3 per cent, after earlier gaining as much as 2.2 per cent. Barclays fell 0.9 per cent in London.

Deutsche Bank’s settlement “might help in the short run because a major source of uncertainty has been cleared,” said Michael Huenseler, an investor at Assenagon Asset Management, which holds about 0.8 per cent of Deutsche Bank’s shares. “But it’s still higher than many have expected and it will pose a long-term drag on profitability.”

Bloomberg