Deutsche Bank needs to set aside up to €1.3 billion ($1.4 billion) in legal provisions as the lender prepares to lose — at least in part — a longstanding shareholder lawsuit concerning its 2010 acquisition of Postbank.
Deutsche disclosed Friday that a court in Cologne, Germany, indicated the bank was likely to partially lose a complex legal dispute revolving around the amount it paid Postbank shareholders for the stock it did not already own.
Though it is a preliminary assessment, the court favored the plaintiffs on several matters and noted that it intends to announce its decision Aug. 24, Deutsche said in a document posted on its website Sunday.
“The bank did not expect a preliminary assessment by the court which would lean in favor of the plaintiff’s claims,” Deutsche Bank said, noting that “the total value of all claims as of today is estimated at €1.3bn, assuming all claims are successful.”
This profit warning follows shortly after Deutsche Bank reported its highest quarterly earnings in more than a decade, which drove an 8% surge in its share price. Deutsche’s share price dropped 9% Monday, according to Reuters.
“Our strong capital base enables us to increase distributions to shareholders while supporting business growth,” Deutsche CEO Christian Sewing said Thursday in a statement. “On all dimensions, we are firmly committed to continued delivery on our path towards our 2025 goals.”
However, analysts cautioned that after a strong result followed by the court hearing, the lender might retreat on its promise of handing out higher payouts to its investors, according to Bloomberg.
Morgan Stanley said the bank might push back on its second buyback this year, while Keefe, Bruyette & Woods analysts said it could be tossed out completely, the publication noted.
Deutsche, however, said it was “too early” to determine whether it was able to apply for a second buyback this year and that it targets shareholders’ payout at over €8 billion through 2026.
“Deutsche Bank management also believes, based on the continued execution of our financial and capital plans that the bank remains on track to achieve total distributions in excess of €8bn in respect of financial years 2021-2025, paid in 2022-2026, consistent with our objective to accelerate distributions beyond the original € 8bn target,” the bank said.
The case up to now
Former Postbank shareholders have argued for the past 14 years that while the bank was in the process of buying out the remaining minority investors, it had gained de facto control in 2008 and paid a lower price for their holdings. They claimed Deutsche failed to make a mandatory takeover offer to the remaining shareholders at that time at a higher price of €57.25 per share — versus the €25-per-share offer it paid in October 2010, the bank said Sunday.
Courts in Cologne squashed the claims in 2011 and 2012, but the rulings were later nullified by the Federal Court of Justice of Germany. In 2017, the bank lost an ensuing trial, which led to a series of more lawsuits, the Financial Times reported.
The court's assessment Friday marks another setback for Deutsche Bank related to its acquisition of Postbank. Late in 2023, the lender faced issues with Germany's financial regulator, BaFin, over the failed integration of Postbank's IT systems — resulting in many customers being locked out of their accounts, significant disruptions to internal operations, and a surge in client complaints to the regulator.
BaFin publicly reprimanded Deutsche and appointed a special monitor to oversee the bank's efforts to resolve the issues. Although the bank stated Thursday that most of the problems had been resolved, it acknowledged the financial impact of the disruption had exceeded €100 million, according to the Financial Times.
