Deutsche Bank Headquarters in Germany (Kiefer./ Flickr)
The news that U.S. regulators have proposed that Deutsche Bank AG pay $14 billion to resolve the bank’s role in the 2008 financial crisis raised speculation Friday that other foreign banks that allegedly falsely marketed subpar mortgage-backed securities may also be close to settling.
For law firms, that means that the years of financial crisis-related work for a handful of elite U.S. law firms is finally coming to an end.
Reeling in the representation for Deutsche Bank, The American Lawyer has learned, is Simpson Thacher & Bartlett commercial litigation partner Thomas Rice on the civil side, as well as Latham & Watkins partner Richard Owens on criminal and regulatory aspects. Neither lawyer nor the German financial services giant confirmed their involvement.
To date, U.S. federal and state officials have extracted at least $44 billion from U.S. banks that issued the failed subprime mortgage securities. Back in 2014, Bank of America Corp., which issued at least 10 times the RMBS than Deutsche Bank did, agreed to pay a whopping $16.65 billion over its part in the crisis, but lawyers projected far lower penalties for the remaining foreign bank defendants: Barclays plc; Credit Suisse AG; Deutsche Bank; HSBC Holdings plc; The Royal Bank of Scotland plc; and UBS Group AG. Analysts at the time predicted that Deutsche Bank would end up paying $3 billion to $3.5 billion, Bloomberg reported.
Deutsche Bank on Friday portrayed the $14 billion figure as merely an opening salvo by the Justice Department’s RMBS working group, a unit set up in 2012 by President Barack Obama and then-U.S. Attorney General Eric Holder Jr. to pursue those responsible for making fraudulent misrepresentations in the sale of the securities.
“The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts,” Deutsche Bank said in a statement. The Goldman Sachs Group Inc., for example, was initially said to face $15 billion in penalties but ended up paying $5 billion in January 2016 to settle claims it misled mortgage bond investors during the run-up to the financial crisis.
Deutsche Bank’s resolution may be the beginning of the end, said two bank litigation lawyers. The foreign holdouts are now under intense pressure by the Justice Department to resolve their cases as the Obama administration approaches its final three months. The ultimate amount that Deutsche Bank pays will indicate whether “foreign banks are being treated differently than domestic banks,” said one bank lawyer.
Another bank litigator said Credit Suisse has tapped Covington & Burling’s Alan Vinegrad for criminal and regulatory advice, as Cravath, Swaine & Moore’s former head of litigation Richard Clary led the bank’s defense in earlier litigation with the Federal Housing Finance Agency.
The RBS, which lost a bid in August 2015 to get the FHFA litigation dismissed, looked to Simpson Thacher’s Alan Turner in that case, which is in a Connecticut federal district court and involves the sale of about $32 billion in alleged faulty securities to Fannie Mae and Freddie Mac. Analysts have predicted a fine of between $2 billion and $3 billion.
Barclays was earlier advised by Sullivan & Cromwell’s David Braff, while Skadden, Arps, Slate, Meagher & Flom’s national securities litigation head Jay Kasner took the lead for UBS in the earlier litigation. None of the lawyers responded to requests for comment about their current roles.
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