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Deutsche Bank is first to settle Fannie Mae, Freddie Mac bond rigging lawsuit

Deutsche Bank is first to settle Fannie Mae, Freddie Mac bond rigging lawsuit
Signage at the U.S. headquarters of Deutsche Bank in New York, United States, July 8, 2019. REUTERS/Andrew Kelly -
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Andrew Kelly(Reuters)
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By Jonathan Stempel

NEWYORK (Reuters) – Deutsche Bank AG <DBKGn.DE> will pay $15 million (12.17 million pounds) to resolve claims it conspired to rig prices of bonds issued by Fannie Mae <FNMA.PK> and Freddie Mac <FMCC.PK>, becoming the first of 16 financial services companies to settle litigation by investors.

The German bank did not admit wrongdoing in agreeing to the settlement, which requires court approval and was made public late Wednesday.

Investors including Pennsylvania Treasurer Joe Torsella accused the defendants of exploiting their market dominance to overcharge investors from Jan. 1, 2009 to Jan. 1, 2016, to secure more profit.

Lawyers for the investors called Deutsche Bank’s settlement, which includes the bank’s cooperation, an “ice-breaker” that could bring other defendants to the negotiating table.

Deutsche Bank spokesman Troy Gravitt said the bank was pleased to settle.

According to an amended complaint filed on Tuesday, the 16 defendants underwrote $3.97 trillion, or 77.2%, of Fannie Mae and Freddie Mac bonds in the seven-year period.

Deutsche Bank’s 6.95% market share was the fourth-largest, trailing Barclays Plc <BARC.L>, JPMorgan Chase & Co <JPM.N> and UBS Group AG <UBSG.S>.

On Sept. 3, U.S. District Judge Jed Rakoff in Manhattan said investors could sue Deutsche Bank and four other banks, calling chat room transcripts involving their traders “direct evidence of a conspiracy to fix prices” and a “rare smoking gun.”

Rakoff dismissed claims against the other 11 defendants, but Tuesday’s complaint was intended to address his concerns.

Fannie Mae and Freddie Mac guarantee more than half of U.S. mortgages, and have been in a conservatorship since taxpayers bailed them out in September 2008. They are sometimes known as government-sponsored enterprises, or GSEs.

“The integrity of the GSE bond market is crucial for any public investment portfolio,” Torsella said in a statement on Wednesday. “The disdain with which traders treated customers is on full display in our amended complaint.”

On Sept. 5, the White House announced a plan to return Fannie Mae and Freddie Mac to the private sector. It faces an uphill fight to convince Congress to act before the 2020 election.

The case is In re: GSE Bonds Antitrust Litigation, U.S. District Court, Southern District of New York, No. 19-01704.

(Reporting by Jonathan Stempel in New York; Editing by David Gregorio)

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