According to a report by Reuters, Deutsche Bank AG (DB) has reached a lawsuit settlement with U.S.-based shareholders. The German bank was accused of hiding information about its capacity to handle risks related to mortgages before the 2008 financial crisis.
The settlement was filed in a U.S. District Court in Manhattan. However, the financial details have not been disclosed. The settlement is expected to be finalized within a month.
The settlement came after a U.S. District Judge quashed a plea to let the lawsuit progress as a class action lawsuit. A class action lawsuit is advantageous to plaintiffs as it reduces litigation costs and puts them in a position to obtain substantial recoveries.
The plaintiffs – which included Building Trades United Pension Trust Fund of Elm Grove, Wisconsin, and two other mutual funds – accused Deutsche Bank of misrepresenting its risk management capacities and the underwriting standards related to mortgages. Additionally, they charged the Frankfurt-based bank of being deliberately slow to take right-downs. Further, they alleged that as a result of all these discrepancies, the company’s share price fell almost 87% from May 2007 to Jan 2009.
Recently, Deutsche Bank has been actively resolving mortgage-related lawsuits. In Dec 2013, it reached a settlement of $1.9 billion with the Federal Housing Finance Agency (FHFA). The FHFA had accused the bank of misrepresenting documents related to mortgage-backed securities to Fannie Mae (FNMA) and Freddie Mac (FMCC). The FHFA was appointed the conservator of these mortgage investors in 2008 as the downside in the housing sector put investors’ funds in jeopardy.
The lawsuit settlements by Deutsche Bank manifest its aim to reduce legal costs over the coming period and thereby boost profitability amid a strained economic backdrop. Further, such moves are expected to provide relief to investors who were duped through risky investments.
Deutsche Bank currently carries a Zacks Rank #4 (Sell). A better-ranked foreign bank worth considering is Barclays PLC (BCS), which carries a Zacks Rank #2 (Buy).
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