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Deutsche Bank agrees to pay $1.9bn to US FHFA

Deutsche Bank has reached a $1.9bn settlement with the US Federal Housing Finance Agency (FHFA), to settle the allegations that it failed to provide adequate disclosure about certain residential mortgage-backed securities sold to Fannie Mae and Freddie Mac.

Deutsche Bank

The current settlement includes the claims of alleged violations of federal and state securities laws in connection with private-label mortgage-backed securities (PLS) purchased by Fannie Mae and Freddie Mac between 2005 and 2007.

Based on the terms of the settlement, Deutsche Bank will reimburse nearly $1.63bn to Freddie Mac and $300m to Fannie Mae, subsequently both government-backed finance companies will release certain claims brought against the bank.

"The settlement agreement does not release Deutsche Bank from any claims relating to LIBOR manipulation and does not include claims made against Deutsche Bank in two other PLS lawsuits presently the subject of ongoing litigation," the FHFA said in a statement.

Commenting on the settlement, Deutsche Bank co-chief executive officers Jürgen Fitschen and Anshu Jain said, "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."

Due to the high exposure of faulty residential mortgage based securities (RMBS), Fannie Mae and Freddie Mac went bust during the financial crisis of 2008, and were subsequently injected with nearly $187.5bn by the US government.

In order to recover the damaged caused by faulty mortgage practices by the banks, the FHFA filed a total of 18 lawsuits against financial companies in 2011, demanding $200bn in compensation.

This is the sixth settlement that FHFA has attained pursuant to the 18 private-label mortgage-backed securities lawsuits filed in 2011.

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Image: The Deutsche Bank Twin Towers, the headquarters of Deutsche Bank, in the banking district of Frankfurt. Photo courtesy of Jürgen Matern.