Credit Suisse and Deutsche Bank have been hit with a combined penalty of more than 12 billion US dollars over the sale of US toxic debt, further hampering two of Europe's leading investment banks as they struggle with weak earnings.
The penalties stem from an initiative launched by US President Barack Obama to pursue banks for selling sub-prime debt without warning of the risks, a practice that led to the worst economic crisis since the Great Depression.
The logo of Swiss bank Credit Suisse is seen below the Swiss national flag at a building in the Federal Square in Bern, Switzerland on May 15, 2014. /CFP Photo
Credit Suisse agreed to pay more than 5.2 billion US dollars in a deal with US authorities and the penalty is likely to push it to a second consecutive annual loss.
The payment, to settle claims it misled investors when selling mortgage-backed securities in the run-up to the 2008 financial crisis, is split into two parts.
It will first pay 2.48 billion US dollars and later provide 2.8 billion US dollars over five years to offset the impact on consumers, the bank said.
A statue is pictured next to the logo of Germany's Deutsche Bank in Frankfurt, Germany on September 30, 2016. /CFP Photo
That news came after Deutsche Bank agreed to a total of 7.2 billion US dollars in settlement for its pooling and sale of toxic mortgage securities. The settlement also divided in a similar manner. The German bank had previously said that the US Department of Justice was seeking twice that figure.
Investors, who had feared an even bigger penalty for Deutsche, were relieved and its shares gained more than 2 percent. They have risen more than 80 percent since hitting a record low at the end of September on fears the bank would need to raise cash from investors.
"I think the fines are reasonable and represent a positive for the system," said Alberto Gallo, head of global macro strategies at hedge fund Algebris Investments.
The penalties put the two European banks at a further disadvantage to larger US rivals, many of whom have already absorbed their own fines for such wrongdoing and have strong capital cushions.
US banks earlier paid 46 billion US dollars in such penalties.
(With inputs from Reuters)
