Deutsche Bank’s Feud with DOJ and its 14 Billion Settlement

Xiang Qi

Shares of Deutsche Bank, one of the world’s largest banks, slopped by 7.5% in European trading and closed at $11.85 after U.S. Department of Justice proposed last week that it pays a 14 billion dollar settlement in light of a mortgage-securities investigation.[1] Although the Bank’s spokesman Jörg Eigendorf denied that Chief Executive John Cryan has sought help from the German government, it has always been the German government who ended up pay for these settlements. [2] Ever since last year, Deutsche Bank’s share price has been decreasing in both European and U.S. stock markets as a result of repeated settlement with the DOJ.

Speculations have it that DOJ reached its astronomical number of settlement in retaliation of EU’s taxes of 14.5 billion on Apple on September 1st. It is no coincidence that the amounts involved in both cases are almost equal as the EU committee is led by countries like Germany and France. These settlements unfortunately has placed Deutsche Bank’s riskiest debt securities under pressure, besides its market shares. Its $2 billion worth of certain additional Tier 1 debt fell about 2 Euro cents on Monday, to around 73 cents on the euro. [3]

There are mainly two reasons that helped establish Deutsche Bank’s feud against U.S. authorities. The first one is German government’s attitude towards the Transatlantic Trade and Investment Partnership (TTIP). Angela Merkel’s hesitation to support TTIP has undermined credibility and feasibility of ratify the agreement between EU and the U.S. despite years of efforts in negotiation by the U.S.

The second reason is that the German and French led Euro-zone has not been willing to execute a new round of quantitative easing (QE). The European Central Bank again refused a QE motion on this month’s EU general council meeting. This decision has put the Federal Reserve on a tough spot as the return of U.S. debts has been climbing by 24 percent within the last three month. Chancellor Merkel’s domestic policy has also led to its party’s approval rates slumping among the young voters. Merkel and her cabinet had to be very discrete as they deal with the transatlantic relationship with the U.S.

 

[1] Jenny Strasburg, Deutsche Bank Shares Drop on Fears of Capital Raising, The Wall Street Journal, http://www.wsj.com/articles/deutsche-bank-shares-drop-on-fears-of-capital-raising-1474881370

[2] Id.

[3] Id.