Deutsche Bank Shares Slump After SEC Sues Goldman Sachs for Subprime Fraud

Deutsche Bank AG fell the most since July, leading European financial stocks lower, after Goldman Sachs Group Inc. was sued by U.S. regulators for fraud tied to packaging and selling collateralized debt obligations.

The German bank slid 4.39 euros, or 7.3 percent, to 55.99 euros in Frankfurt trading, while Switzerland’s UBS AG declined 2.8 percent and BNP Paribas SA of France retreated 3.8 percent. The 52-member Bloomberg Europe Banks and Financial Services Index fell 2.6 percent, the biggest drop in two months.

Goldman Sachs misstated and omitted key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter, the Securities and Exchange Commission said in a statement today. The SEC also sued Fabrice Tourre, a Goldman Sachs vice president.

“The entire financial sector dropped after the Goldman news,” said Dirk Becker, an analyst at Kepler Capital Markets in Frankfurt, said by telephone today. “This is bad for the sentiment of banks if regulators start taking a closer look at where banks made their money.”

The collapse of the U.S. subprime mortgage market in 2007 sparked the worst financial crisis since the Great Depression, leading to more than $1.7 trillion in writedowns at financial firms and government bailouts worldwide.

“The SEC continues to investigate the practices of investment banks and others involved in the securitization of complex financial products tied to the U.S. housing market as it was beginning to show signs of distress,” Kenneth Lench, head of the SEC’s structured and new products unit, said in today’s statement.

New York-based Goldman Sachs said the “charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation,” according to a statement from the company. Deutsche Bank spokesman Ronald Weichert declined to comment.

To contact the reporters on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

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