Deutsche versus DoJ: Why did the Department of Justice fine Deutsche Bank
Deutsche versus DoJ: Why did the Department of Justice fine Deutsche Bank
In September 2016, the Department of Justice in the United States fined Deutsche Bank $14 billion over the bank’s earlier sale of mortgage-backed securities. The fine will be the largest settlement paid by any bank. Worryingly for Deutsche Bank, the size of the fine is roughly equivalent to its market capitalisation. Deutsche Bank has been making a case for a reduction in the fine. The prospect of a bank failure has systemic implications. Indeed, other European banks are currently under investigation by the Department of Justice. The banks include Barclays, Credit Suisse, UBS and RBS.
Why did the Department of Justice fine Deutsche Bank?
Explain the response of Deutsche Bank to the fine and report on its counter proposal to the Department of Justice.
Identify the date of the announcement of the fine. Trace the reaction of the share price of Deutsche Bank. Use graphics
Collect daily share prices and the market capitalisation for Deutsche Bank from DataStream (or Yahoo Finance) for a period, say from August 2015 to October 2016. Source comparable data for the market index. Estimate the market model for Deutsche Bank and determine the market reaction to the announcement of the DoJ fine. Did it destroy shareholder value?
Repeat the event study analysis for the other European banks currently under investigation by the Department of Justice i.e. Barclays, Credit Suisse, UBS and RBS. Collect daily share price data and market capitalisation for each of the banks. Select a relevant market for the UK and Switzerland. Calculate the effect of the announcement of the fine on Deutsche Bank on shareholder value at the other banks.