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Deutsche Bank's hefty DOJ settlement looks set to hang in limbo: Report

Evelyn Cheng

A report has raised concerns that Deutsche Bank could hang in limbo longer than many people had hoped.

More than a month after news first surfaced that the Department of Justice has asked the struggling German lender for a $14-billion settlement around its former sales practices regarding mortgage-backed securities, a Sky News report, citing a banking industry source, said the final decision on any fine would not likely come until after the November U.S. election.

The final size of a negotiated settlement is still unknown, though most industry-watchers expect it to be much lower than $14 billion.

Deutsche Bank declined CNBC's request to comment on the Sky News report. Regardless, analysts are taking the report seriously.

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"I think it's quite realistic, to be honest. I think it could be the case," said Steven Gould, analyst at Natixis, which has a "sell" rating on Deutsche Bank.

He said continued uncertainty over the final settlement will hang over the bank, especially as the German firm's management will likely take a "cautious stance" during the bank's earnings results scheduled for this Thursday.

Two other major European banks, Barclays and Credit Suisse, also are under scrutiny for their sales of the securities, and in September, the Financial Times reported that the DOJ hopes to combine cases against Barclays, Credit Suisse and Deutsche Bank into a multibillion dollar settlement.

A senior banker told Sky News this week that if the DOJ wanted to settle with all three banks simultaneously, a deal would not likely come before the U.S. presidential election, the British news organization reported late Monday afternoon New York time.

Barclays, Credit Suisse and the Justice Department declined to comment.

Deutsche Bank (XETRA:DBK-DE) shares briefly fell 3 percent in Frankfurt trade Tuesday. The U.S.-traded shares dropped more than 2 percent in opening trade before paring losses to trade about 1.2 percent lower.

Source: FactSet

Deutsche Bank shares fell to record lows in New York trade at the end of September after the DOJ news came out, but they have gradually recovered amid hopes of a lower settlement figure. In New York intraday trade last Thursday, shares briefly recovered to levels from before the DOJ news.

As of June 30, Deutsche Bank said it had 5.5 billion euros ($6.17 billion) in litigation reserves, according to a presentation the bank gave during quarterly earnings.

Separately on Tuesday, Reuters reported, citing three sources, that the German lender may choose to integrate its retail bank arm Postbank rather than selling it. Both parties declined to comment to the newswire. Deutsche Bank had planned to sell Postbank in order to raise capital and reduce its balance sheet, but it has struggled to find a buyer.

Read the Sky News report here.



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