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 The deal, negotiated by the Federal Housing Finance Agency, is the
second-largest regulatory settlement over claims banks engaged in
fraud in packaging and selling mortgage-backed securities, after a
$13 billion deal with JPMorgan Chase & Co <JPM.N>.
The settlement, equal to 1.4 billion euros, resolves a lawsuit
accusing the German bank of misleading Fannie Mae <FNMA.OB> and
Freddie Mac <FMCC.OB>, America's biggest providers of housing
finance, into buying $14.2 billion in mortgage-backed securities.
The lawsuit was one of 18 that the FHFA filed in 2011 against
financial institutions. The agency has to date reached six
settlements with banks, including UBS AG <UBSN.VX><UBS.N> and
JPMorgan Chase & Co <JPM.N>.
Deutsche Bank said in a statement that it had exited the businesses
at the heart of the housing suit and had improved its controls.
Germany's biggest bank also said it was working to resolve a raft of
other legal and regulatory problems.
"Today's agreement marks another step in our efforts to resolve the
bank's legacy issues, and we intend to make further progress in this
regard throughout 2014," Co-Chief Executive Officers Juergen
Fitschen and Anshu Jain were quoted in the statement as saying.
Under the settlement, the FHFA said Deutsche Bank will pay $1.63
billion to Freddie Mac and $300 million to Fannie Mae. Deutsche Bank
will not admit liability as part of the settlement, documents
showed.
The two taxpayer-owned mortgage finance firms have rebounded to
profitability as the housing market has recovered.
The settlement, which a court filing says will be paid by January
13, is expected to be reflected in financial statements for Fannie
and Freddie sometime next year. If it winds up boosting earnings, it
will go straight to the Treasury in the form of dividend payments.
Fannie Mae and Freddie Mac, which currently back about half of
existing U.S. home loans, were seized by the government in 2008 as
mortgage losses mounted. They have received $187.5 billion in
taxpayer funds to stay afloat, while paying about $185.2 billion in
dividends to the government for that support.
Deutsche Bank said the payment had already been taken into account
in its existing litigation reserves and that no additional reserves
will be taken for the settlement.
OTHER LAWSUITS AND SETTLEMENTS
The FHFA's lawsuit, filed in New York, was one of 18 that the agency
filed over false or misleading statements relating to some $200
billion in mortgage-backed securities sold to Fannie and Freddie.
The lawsuit against Deutsche Bank centred on 40 mortgage-backed
securities that Fannie Mae and Freddie Mac bought and that Deutsche
Bank sponsored or underwrote from September 2005 to June 2007.
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Deutsche Bank and the other defendants have suffered a series of
disappointments in the litigation, failing to win dismissal of the
lawsuits, among other setbacks.
U.S. District Judge Denise Cote, who oversaw Deutsche Bank's case
and 10 others against defendants who have not yet settled, on Monday
ruled that the banks could not defend themselves against the FHFA's
state-law claims by arguing that Fannie and Freddie's losses were
due not to misrepresentations but to the financial crisis.
Amid the legal setbacks, the defendants have been cutting deals.
Most recently, Ally Financial Inc <ALLY_pb.N> disclosed in October
it reached an agreement to resolve claims by the FHFA and another
regulator, the Federal Deposit Insurance Corp. Ally said it expected
to take a $170 million charge on those settlements.
Ally's accord followed the biggest one the FHFA has announced so
far, a $5.1 billion settlement with JPMorgan Chase, $4 billion of
which covered the lawsuits pending against it before Cote.
JPMorgan's agreement was part of a $13 billion deal negotiated by
the U.S. Justice Department as the bank sought to put civil mortgage
liabilities by government agencies behind it.
The FHFA has reached three other deals this year, including an $885
million settlement with UBS AG <UBSN.VX><UBS.N> and two confidential
settlements with Citigroup Inc <C.N> and General Electric Co <GE.N>.
"We look forward in 2014 to the first trials on the merits against
the defendants" in the remaining cases, Philippe Selendy, a lawyer
for the FHFA at Quinn Emanuel Urquhart & Sullivan, said in a
statement.
In the cases remaining before Cote, Merrill Lynch, part of Bank of
America Corp <BAC.N>, is set to face trial first in June 2014.
Credit Suisse Group AG <CSGN.VX> and Goldman Sachs Group Inc <GS.N>
are scheduled to follow in September 2014.
The case is Federal Housing Finance Agency v. Deutsche Bank AG et
al, U.S. District Court, Southern District of New York, No.
11-06192.
(Reporting by Jonathan Gould in
Frankfurt and Nate Raymond in New York; additional reporting by
Margaret Chadbourn, Karen Freifeld and Jonathan Stempel; editing by Harro ten Wolde, Jane Merriman, Jan Paschal and Dan Grebler)
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