Deutsche Bank Reaches $1.9 Billion Deal with FHFA

, The Litigation Daily


Deutsche Bank SA has become the latest bank to reach a mega-settlement with the Federal Housing Finance Agency, the conservator for Fannie Mae and Freddie Mac.

As part of a settlement agreement made public Friday, Deutsche Bank will pay $1.9 billion to settle claims that the bank and three individuals didn't make adequate disclosures about mortgage-backed securities it sold to Fannie and Freddie before the financial crisis. This deal marks the fourth settlement that the FHFA and its lawyers led by Philippe Selendy at Quinn Emanuel Urquhart & Sullivan have reached since the agency sued 18 banks in 2011.  To date, these settlements total more than $8 billion.

Deutsche Bank, represented by Thomas Rice and David Woll of Simpson Thacher & Bartlett, will not admit liability. In fact, the agreement states that the defendants "vigorously deny" that they misled Fannie and Freddie.

The settlement, dated Thursday, comes just three days after Manhattan U.S. District Judge Denise Cote issued her latest ruling against the defendant banks. Responding to the banks' summary judgment motion, she held that the defendants cannot raise a loss causation defense to the FHFA's "Blue Sky" state securities law claims. As a result of that ruling, the banks can't argue that the FHFA's Blue Sky claims are barred because Fannie's and Freddie's losses were caused by the market crash, not by the defendants' alleged misrepresentations. Those Blue Sky laws are important to the FHFA's case because they let the agency seek large rescissory damages, plus significant interest, an outcome that Reuters blogger Alison Frankel has called a "windfall"

Cote has sided with the FHFA on other crucial pre-trial issues, including a ruling on the statute of repose affirmed by the U.S. Court of Appeals for the Second Circuit in April.  The joint defense group also filed an unsuccessful writ of mandamus at the Second Circuit, arguing that Cote's approach to discovery handicapped their defense.

FHFA previously reached deals with Citigroup Inc., UBS AG, JPMorgan Chase & Co., General Electric Co., and Ally Financial Inc. (Kasowitz Benson Torres & Friedman represented the FHFA for the GE and Ally settlements.) The Deutsche Bank deal is the FHFA's second largest, behind a $5.1 billion pact with JPMorgan announced in October. That settlement was part of the bank's $13 billion deal with the U.S. government. 

FHFA's first trial, against Merrill Lynch & Co., is scheduled for June 2014. In a statement, FHFA lead counsel Philippe Selendy of Quinn Emanuel said: "We look forward to the first trials on the merits in our ten remaining cases for FHFA."

Deutsche Bank co-CEOs Juergen Fitschen and Anshu Jain said in a statement: "Today's agreement marks another step in our efforts to resolve the bank's legacy issues."

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