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Germany's Largest Bank Settles RMBs Claim In US

Tom Burroughes, Group Editor , June 8, 2017


The bank settled a legal claim in the US, continuing a run of such moves by banks in the wake of the financial blow-up of 2008.

Deutsche Bank has reached a $95 million settlement with Maryland to resolve claims that the Frankfurt-listed lender had misled investors over securitization and sale of residential mortgage-backed securities. The claims had arisen in the aftermath of the 2008 financial crisis when RMBS and similar securities unravelled as sub-prime mortgage defaults skyrocketed.

The settlement was announced a few days ago by Maryland Attorney General Brian Frosh. The bank declined to comment to this publication.

Under the agreement, Germany’s largest bank must provide $80 million in relief to Maryland consumers. The $95 million settlement is the largest reached by a state for Deutsche Bank’s financial-crisis era RMBS-related conduct, a statement from the attorney-general’s office said. 

“Deutsche Bank has acknowledged that it deceived investors about the quality of the residential mortgages backing their complex securities,” Frosh said. “Its conduct, and that of other investment banks, fueled the financial crisis and aided unfair and predatory lending practices. This settlement recoups losses that Maryland suffered through investments in Deutsche Bank securities and also ensures that Maryland consumers will receive relief from the Department of Justice settlement entered into during the Obama Administration,” he continued.     

Deutsche Bank did not lend directly to consumers, but rather packaged and sold mortgages into complex securities known as RMBS and collateralized debt obligations, the statement continued.

The AG’s statement said: “Deutsche Bank had an obligation to provide complete and accurate information to investors. Despite this obligation, Deutsche Bank acknowledges that it misled investors. By misrepresenting key characteristics of the loans that it securitized, Deutsche Bank concealed from investors and rating agencies the true risk of losses of its RMBS. In doing so, Deutsche Bank deprived investors of their right to make an informed decision about whether they should invest in those RMBS.”  

The settlement will provide $15 million in restitution for state and local government investments, and earmarks $80 million for consumer relief from the Department of Justice’s settlement.  Consumer relief will be provided in the forms of mortgage forgiveness and forbearance, low to moderate income lending, neighborhood reinvestment and stabilization, and affordable housing financing. 

It is understood that the $80 million in consumer relief for Maryland is simply a carve-out of the $4.1 billion in consumer relief from the bank's RMBS settlement with the Justice Department earlier in the year, as previously announced. 


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