IMF chief Christine Lagarde said Thursday that Deutsche Bank would be better off reaching a deal with the United States over its sale of toxic mortgage bonds than fighting it in court.

With the German financial giant now negotiating to lower the Justice Department's proposed $14 billion payout to settle the case -- a sum which would cut deeply into the bank's relatively weak capital foundations -- Lagarde said a compromise sooner is better than protracted litigation.

"I'm a lawyer by background. So I think that a bad settlement is always better than a good trial," the International Monetary Fund's managing director told Bloomberg Television. 

"We're not in a trial mode clearly in the case of Deutsche Bank," she said.

"But a settlement would certainly be welcome because it would deliver some certainty as to what weight the bank will have to carry and whether it matches with its provisions or not. So the sooner, the better."

Deutsche Bank had put aside 5.5 billion euros ($6.1 billion) for its pending legal costs. The main one is US charges that it knowingly sold high-risk housing loan securities as low-risk investments before the 2008 financial crisis.

The bank was shocked by the Justice Department's $14 billion initial proposal, and strongly rejected it. Last week sources close to the matter told AFP that discussions were focused around a $5.4 billion figure. 

Lagarde was speaking during the annual meetings of the IMF and the World Bank in Washington.

Source: AFP