Skip to Content
Stock Analyst Update

DOJ's $14 Billion Ask from Deutsche Bank Rich

The U.S. Department of Justice's proposal that Deutsche Bank pay $14 billion to settle claims of mis-selling mortgage securities is an extravagant negotiating tactic.

The U.S. Department of Justice has proposed that Deutsche Bank pay $14 billion to settle claims of mis-selling mortgage securities. We consider this an extravagant request and certainly an opening negotiating tactic. Deutsche Bank said it has no intent of settling at anywhere close to that figure. For now, we plan to maintain our $18/EUR 16 fair value estimate and no-moat rating, which includes a EUR 5.2 billion capital raise. The bank currently has EUR 5.5 billion in reserves, and we model another EUR 4 billion in charges over the next few years. The bank indicated that it views a $2 billion-$3 billion settlement over this issue as reasonable. Prior settlements with Goldman Sachs ($5 billion) and Bank of America ($16.65 billion) indicate a wide range of possibilities depending on the strength of the evidence gathered by the DOJ and the bank’s relative size in the residential mortgage-backed securities market. We estimate a EUR 8 billion settlement would push the bank’s common equity Tier 1 ratio to about 10.4% from 10.8% once the sale of its stake in Hua Xia is completed.

We are concerned that the settlement news will revive investor worries regarding Deutsche Bank’s overall liquidity as well as systematic issues. We also believe the settlement will lay the groundwork for future settlements with other European banks such as Barclays, UBS, Royal Bank of Scotland, and Credit Suisse. We do think Deutsche Bank is motivated to settle relatively quickly, not only to remove the distraction for its management team, but also because we expect it to engage in a capital raise after the settlement, and this is one of its larger remaining legal issues. As a result, the outcome here could influence the dilutive impact of the subsequent capital raise for shareholders.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.