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Deutsche Bank Embarassed in Mortgage Lawsuit: Analysts

Wednesday, 4 May 2011 | 10:25 AM ET

The lawsuit that the United States has brought against Deutsche Bank, which accuses the German bank and its MortgageIT unit of misleading the US government over the quality of housing loans which received state guarantees, will dent the bank's reputation but is unlikely to deal it a significant blow, analysts told CNBC.

The US is suing Germany´s biggest lender for "reckless" business practices on the US housing market and the US Attorney is now seeking compensation for the losses incurred by souring home loans which were insured by the state.

By February, the US government had already paid out $386 million in insurance claims based on loans by MortgageIT.

But that amount could grow by $888 million as loans worth that much have already defaulted but claims have not yet been paid, according to the US government.

“I believe that the claim will be settled with a much smaller amount, something between $100 and $200 million”, said Dirk Becker of Kepler Equities who has a "Buy" rating on the stock.

Konrad Becker of Merck Finck an Co said: “For now it is only an accusation and not a sentence. I think the market has panicked yesterday. That is why we are seeing a rebound today”.

"Historically", he added, "these kind of trials are always settled far below the initial amount requested by the attorney."

The lawsuit adds to ongoing problems Deutsche Bank faces. In April a subcommittee of the US Senate wrote in a report that it found a "a variety of troubling and sometimes abusive practices” by banks, such as GoldmanSachs and Deutsche.

Roland Weichert, a spokesperson for Deutsche Bank told CNBC: “We believe that the claims against MortgageIT and Deutsche Bank are unreasonable and unfair and we intend to defend the action vigorously.”

The matter has been referred to the SEC has launched an investigation.

In March Deutsche Bank ran into trouble when Germany´s top civil court said that it was in breach of its duties when it sold a complex interest rate security to a corporate client.

Deutsche has been ordered to pay a 541.000 euro fine.

The ruling could set a precedent for similar claims against the bank as Deutsche sold the product to a host municipalities and companies.

The cases look set to damage the bank's reputation more than anything.

“In any case, a bad relationship with governments is nothing which is good for a bank”, Konrad Becker said.

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