As president-elect Trump looks to overturn some aspects of the eight-year legacy of President Obama, the outgoing US president has sought to resolve one of its last remainingbank mortgage crisis. Two giants, Deutsche Bank and Credit Suisse, have agreed to multi-billion dollarsettlements with the US Department of Justice, often abbreviated as the DoJ, over a decade-old toxic bond misselling scandal. However, Barclays Bank has refused to settle with the DoJ, which is an unprecedented move. The DoJ has initiated legal action against Barclays PLC alleging more than $30 billion in fraud-tainted sales.Deutsche Bank and Credit Suisse shares rose by 4% and 2% respectively while Barclays shares dropped less than 1% in the backdrop of these events.
The 2008 global economic recession was caused by the sub-prime loan crisis. The culprit was these toxic bonds, bonds whose value has fallen significantly and for which there is no longer a functioning market,rendering them unsaleable.To avoid a repeat of that infamous ordeal, the DoJ had shown urgency in dealing with these giants. The move comes even aspublic uncertaintylooms over which route the Trump administration will take post-January 20, 2017. Trump is and has been a darling of the Wall Street biggies, which includes all the three names involved here. Reports state that Deutsche Bank will pay $7.2bn (5.9bn) to the DoJ, a sum considerably lesser than the original demand of $14 billion, according to this WSJ report. Credit Suisse has agreed to pay $5.3bn. Barclays PLC has not agreed to any settlement and has been accused of “irresponsible and dishonest conduct” by the DoJ, as confirmed by this report by The Guardian.
The sum generated by this settlement will be divided into two parts: a $3.1 billion penalty and a payment of $4.1 billion over a period of time to a “consumer relief” fund to be distributed by the US government. This relief fund will include loan modifications for consumers and is still being finalised between the DoJ and the banking giants.These settlements follow similar multibillion-dollar agreements reached over the past three years with other big names of banking, including like J.P. Morgan Chase and Citigroup Inc.
The legal action initiated against Barclays PLC is very unusual like we mentioned. The last time such action was taken was in 2012 and 2013,when the DoJ filed two lawsuits against Bank of America Corp. related to precrisis sales of mortgage-backed securities. Of these, one was dismissed this year. A 198-page lawsuit by the U.S. government says the bank engaged in billion-dollar frauds and acts of deceit. The Barclays PLC CEO Jes Staley stated that he felt that the settlement amount was too high and unreasonable, perhaps explaining why the giant did not choose to settle.