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Deutsche Under Scrutiny of U.S. Regulators Over 1MDB Scandal

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Per an article by the Wall Street Journal, Deutsche Bank (DB - Free Report) is being probed by the U.S. Department of Justice (“DoJ”) regarding its role in state fund 1Malaysia Development Berhad (1MDB). The bank had helped the fund to raise $1.2 billion in 2014.

The inquiry involves judging whether the bank violated foreign corruption or anti-money-laundering laws. However, no accusations have been laid on Deutsche Bank so far.

The German lender came under regulator’s scrutiny through one of its former employees who was also an ex-employee of Goldman Sachs and colleague to Tim Leissner.

Goldman has long been scrutinized for its role in raising funds through bond offerings for 1MDB, the fund entangled in corruption and money-laundering probes in roughly six countries. Notably, per the DoJ, misappropriation of funds, worth nearly $4.5 billion, from 1MDB by top officials of the fund and their colleagues from 2009 through 2014 also included funds, which were raised through Goldman.

The investigation comes at a time when Deutsche Bank announced its major restructuring plan in a bid to improve long-term profitability. It seeks to achieve a fresh set of targets by 2022 without raising additional capital. As part of its strategy, the lender plans to axe about 18,000 jobs in the next three years.

Affected by restructuring costs, the bank expects to incur loss before income taxes of €500 million and a net loss of €2.8 billion in second-quarter 2019. Also, its involvement in persistent legal hassles and a low rate environment in the domestic economy remain key concerns.

Shares of Deutsche Bank have lost 13.8% on the NYSE in the past six months against the industry’s growth of 1.5%.

The stock currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the finance space are Hilltop Holdings Inc. (HTH - Free Report) , Credit Suisse Group (CS - Free Report) and Washington Federal, Inc. (WAFD - Free Report) . All these stocks carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Hilltop Holdings has been raised 8.3% for the current year in the past 60 days. The company’s share price has gained 17% in the past six months.

Credit Suisse has witnessed slight upward revision in earnings estimates for 2019 in the past 30 days. Its share price has risen 1% in the past six months.

Washington Federal’s shares have gained 25.8% in six months’ time. Its earnings estimates for 2019 have moved up slightly in the past 60 days.

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