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Deutsche Bank warned late on Friday that up to a fifth of its expected pre-tax profit in 2024 might be wiped out as it braces for defeat in parts of a long-running shareholder lawsuit over its ill-fated 2010 takeover of domestic rival Postbank.
The profit warning comes a day after Deutsche Bank reported its highest quarterly profit in 11 years, sending its shares up more than 8 per cent to their highest level in seven years.
But on Friday the lender disclosed that it would book a provision of up to €1.3bn after a court in Cologne indicated that the bank was poised to lose elements of a complex lawsuit over what it paid other shareholders in German retail lender Postbank for the stock it did not already own.
Deutsche said it would now seek to cover this risk, but did not disclose a final figure to be set aside. It warned that “the full amount of all claims, including cumulative interest, is approximately €1.3bn”.
This compares with the €6.8bn in pre-tax profit that analysts expect in the lender’s full-year results and would knock 20 basis points from its common equity tier one — a key benchmark of balance sheet strength — pushing it down to 13.25 per cent.
The court’s assessment signals yet another Postbank-related hitch for Deutsche. In late 2023, it clashed with Germany’s financial watchdog, BaFin, over the botched integration of Postbank’s IT systems. That process resulted in many customers being locked out of their accounts, heavy disruption to internal workflows and a dramatic spike in client complaints to the regulator.
BaFin dispatched a special monitor to oversee Deutsche’s work on improving matters and publicly rebuked the lender. Deutsche said on Thursday that most of the issues had been resolved, adding that the financial hit to the bank from the disruption so far stood at more than €100mn.
Former Postbank shareholders have spent 14 years claiming that Deutsche Bank paid too low a price for their holdings. They argue that the bank had gained de facto control years before while it was in the process of buying out the remaining minority investors. It first took a stake in 2008 with an option to increase this later, which it did in three stages up to 2010
They maintain that Deutsche ignored an obligation under German law to make a mandatory takeover offer to the remaining shareholders at a time when Postbank’s shares were trading at €57.25, against the €25 Deutsche eventually paid.
The claims were originally struck down by courts in Cologne in 2011 and 2012, but these rulings were later nullified by Germany’s Federal Court of Justice. Deutsche Bank lost a subsequent trial in 2017 but lodged an appeal, resulting in an another series of lawsuits.
The lender is now expecting to lose the final round as the Cologne court “indicated that it may find elements of these claims valid in a later ruling”.
The bank said on Friday that it “continues to disagree strongly” with the plaintiffs’ view. It added that it had not yet fully analysed the legal arguments or the financial impact of the court’s opinion but that while second-quarter and full-year profits would take a hit, management “does not expect a significant impact on the bank’s strategic plans or financial targets”.
Most of Deutsche’s published financial goals — such as lowering its cost-income ratio to 62.5 per cent and lifting its return on tangible equity to more than 10 per cent — are targeted for 2025, while the one-off effect from the Postbank issue will be felt this year.
But the provision could have an impact on the lender’s October 2023 promise to increase dividends and share buybacks by 2025 by an additional €3bn on top of the €8bn it has already committed to returning.
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