The United States Department of Justice just dropped the hammer on Deutsche Bank, commanding the bank to pay $14 billion to settle civil claims based on its handling of residential mortgage-backed securities. Since that announcement, shares in the bank have dropped precipitously, and may not have seen rock bottom quite yet.
The bank is already reeling — both financially and in the eye of the consumer public — thanks to the process of attempting to toe the line of harsher regulatory requirements which have forced the company to cut costs. This on top of several legal problems, investigations, and growing consumer frustration and doubt.
The new regulations have forced the bank to cut costs, which hurts profits and angers investors. So, for those keeping score at home, just about no one — customers, regulators, and investors — is happy with Deutsche Bank right about now. Shares have fallen eight percent in Europe, and the bank is flat out refusing to settle at the amount demanded by U.S. regulators.
The bank told investors “negotiations are only just beginning … they will lead to an outcome similar to those of peer banks which have steeled at materially lower amounts…”
They might be certain, but others are less so … and public sentiment, no matter how some Europeans feel about U.S. overreach, is not with the company. Nor do the markets seem to be buying that line of reasoning.
Probably worse, at least where US consumer PR is concerned is the reason for the demanded settlement in the first place. DB is being lumped in with several other banks the government accused of poor lending practices leading up to the 2008 mortgage bubble and subsequent financial crisis. U.S. banks were accused of misleading consumers, tricking them into substandard loans…then selling those loans as strong securities to investors who were unaware of the problems. U.S. regulators are clearly painting DB with the same broad brush.
This comparison is not likely to sit well with American consumers, many of whom are still reeling from the banking debacle that put people in loans they had no business in then left investors holding the bag when those people defaulted on those loans.
Ronn Torossian is a PR maverick and the CEO of 5W PR in NYC.