- Banks could face big fines over mortgage-backed securities
- Barclays downgrades banks to equal weight, cuts price targets
Deutsche Bank AG and Credit Suisse Group AG may have to raise more capital because of the need to resolve U.S. claims over the sale of mortgage-backed securities before the financial crisis, Barclays said as it downgraded the two banks.
Deutsche Bank may face settlement payments of as much as $4.5 billion, while Credit Suisse may have to pay $2 billion, Jeremy Sigee, Kiri Vijayarajah and Thomas Klocanas wrote in a note to investors Thursday.
The banks are “well below” their Common Equity Tier 1 targets and “struggling to build,” the analysts said. “The fear for equity investors is that litigation settlements could increase the likelihood of capital raising moves.”
They lowered the banks to equal weight from overweight and cut price targets for the stocks.
Goldman Sachs Group Inc. agreed in April to pay $5.1 billion to settle claims that it failed to properly vet mortgage-backed securities before selling them to investors as high-quality debt. It was the fifth multibillion-dollar settlement reached with banks resulting from the government’s push to hold Wall Street firms to account for creating and selling subprime mortgage bonds that helped spur the 2008 financial crisis.
JPMorgan Chase & Co. paid $13 billion, Bank of America Corp. paid $16.7 billion, Citibank Inc. $7 billion and Morgan Stanley $3.2 billion.
Credit Suisse and Deutsche Bank are seeking to boost capital levels and profitability by selling or exiting businesses, shrinking their securities units and cutting jobs. A capital increase could prove difficult as the investment-banking industry is in “structural decline,” Berenberg analyst James Chappell wrote last month.
Deutsche Bank had set aside 5.4 billion euros ($6.1 billion) for potential litigation expenses at the end of March. Credit Suisse had 1.7 billion francs ($1.8 billion).
Deutsche Bank has raised 21.7 billion euros through three capital increases since the global financial crisis. Chief Executive Officer John Cryan signaled in May that the bank plans to carry out its overhaul without tapping investors.
Credit Suisse, which tapped shareholders for about 6 billion francs late last year, plans to raise more capital from the partial sale of its Swiss unit in 2017.