European banks have rushed to cut deals with prosecutors over longstanding claims that they pushed toxic mortgage securities in the years before the financial crisis.
The payouts are steep: Deutsche Bank and Credit Suisse said that they would disgorge nearly $13 billion combined to settle with the United States Justice Department.
But with the clock ticking before President-elect Donald J. Trump takes over, there appears to be an eagerness in Washington to conclude cases before a new, potentially more sympathetic, administration begins. As a result, these banks may have benefited from paying billions less than once proposed.
The $7.2 billion settlement with Deutsche Bank was a relief on Friday to its investors, who were rattled when it emerged in September that prosecutors were seeking a penalty of as much as $14 billion. Shares of Deutsche Bank rose as much as 5 percent in Frankfurt, before settling up 0.8 percent.
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A smaller player in the mortgage-backed securities market, the British bank Barclays, appears to be willing to take its chances under the administration of Mr. Trump.
Barclays said on Thursday that it would “vigorously defend” itself in court against a complaint brought by the Justice Department after settlement talks collapsed. Its shares fell 0.9 percent in London trading as investors weighed the legal risk.
The government says that Barclays, which like Deutsche Bank has significant operations in New York, sold more than $31 billion in mortgage securities that turned out to be “catastrophic failures.”
A decade ago, bundling and structuring mortgages on American homes into securities to be sold to investors around the world was a hugely profitable business for Wall Street banks, American and European. But as risky mortgages began tumbling into default, the securities turned toxic, and the resulting panic led to a global financial crisis in 2008.
Holding the banks accountable for that meltdown continues to be debated in political campaigns, books, op-ed articles and movies like “The Big Short.”
The crackdown on banks for those tainted securities was the Obama Justice Department’s biggest and most prominent crisis-era legal effort by far. Banks, most of them American, have paid more $100 billion in settlements with the government.
Yet the Obama administration has been criticized for allowing banks to write big checks to settle claims and for not prosecuting Wall Street executives.
Now, as the end of the administration nears, recent legal setbacks may have emboldened Barclays. (The Swiss bank UBS and the Royal Bank of Scotland remain in settlement talks with the Justice Department.)
In May, a federal appeals court overturned a $1.27 billion penalty against Bank of America over the sale of troubled mortgages to Fannie Mae and Freddie Mac. The appeals panel found that prosecutors did not provide sufficient evidence that either the bank’s Countrywide unit or a former Countrywide executive had committed fraud in a loan program known as “the hustle.”
For its fight with the Justice Department, Barclays is bringing in a team of lawyers from Williams & Connolly who represented Bank of America in that case. Barclays will also rely on its usual counsel at Sullivan & Cromwell.
Deutsche Bank and Credit Suisse have been eager to move past their troubled legal legacies and overhaul their respective banks. Credit Suisse said on Friday that it would pay $5.3 billion over its role in mortgage securities.
For Deutsche Bank, a settlement lifts a cloud that had been hanging over the bank, and making it all the more difficult for its leader to break with its past.
In recent years, its legal woes have surpassed mortgage securities to include manipulating benchmark interest rates and allegations of Russian money laundering.
Since taking over in mid-2015, John Cryan, Deutsche Bank’s chief executive, has been trying to undo this legacy. But the settlement does not dispel doubts about whether Mr. Cryan can retain membership among the world’s top investment banks.
Especially in the United States, Deutsche Bank’s ability to compete with Goldman Sachs and JPMorgan Chase is likely to be hampered by the costly settlement.
And no institution can call itself a global investment bank without a strong presence on Wall Street.
“It’s the most important market for investment banking,” said Ingo Speich, a fund manager at Union Investment in Frankfurt. “If they want to offer investment banking services globally, they can’t get around the U.S.”
One American tie of Deutsche Bank has drawn attention lately.
In a financial disclosure form filed in 2015, Mr. Trump said that the wealth management division of the bank was among the firms that managed his stock investments. His transition team has since said it had sold the president-elect’s stock holdings.
In that same filing, Mr. Trump said that his businesses have loans or mortgages from Deutsche worth as much as $125 million. Some critics have suggested that Mr. Trump’s business and personal dealings with Deutsche Bank could pose a conflict of interest.
As for Mr. Cryan, he is trying to pull off several transformations.
He has been hacking away at a catalog of charges of wrongdoing and litigation that, in the bank’s most recent quarterly report, required more than eight pages to explain. Other charges include violating international embargoes against countries like Iran and manipulating currency markets.
In addition, Mr. Cryan has been trying to infuse the bank with a stronger sense of ethics to avoid future scandals.
He also has been shrinking the bank’s assets — the sum of its outstanding loans, derivatives and other holdings — to reduce its need for capital and meet stricter regulatory requirements.
And he has been trying to cut costs and improve efficiency, including laying off thousands of workers and bringing order to the bank’s Balkanized information technology systems.
As Deutsche Bank made acquisitions over the years to expand its services, it acquired a variety of computer systems that were never properly integrated.
American regulators have criticized Deutsche for not being able to provide information because of antiquated technology.
Most important, Mr. Cryan has been trying to convince investors and demoralized employees that Deutsche Bank can find new sources of profit and growth despite its setbacks. Only then can it avoid the fate of European rivals that have slashed their investment banks, like Credit Suisse.
Deutsche Bank’s supporters say it still has many strengths.
It ranks among the top currency traders. With its operations in Frankfurt and London, the bank could benefit as clients shift financial operations to the Continent because of Britain’s vote to leave the European Union.
The bank may also be well positioned to take advantage of growth in Europe’s corporate bond markets. Companies in Europe tend to rely on traditional bank loans, but increasingly are turning to debt markets, as is already the case in the United States. Deutsche Bank is a leading issuer of corporate debt.
And some clients are wary of the dominance of the big American investment banks and are eager to do business with a European bank instead.
But efforts to capitalize on those opportunities are likely to be hampered for years by past errors.
“The question is how many risks are still in the pipeline,” Mr. Speich of Union Investment said. “It’s too early to say the worst is over.”
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