Deutsche Bank has recently come to settlements with almost 60% of the plaintiffs involved in a case that has been ongoing for over a decade. This case alleges that the German lender underpaid for its acquisition of Postbank more than ten years ago. The settlements have been reached with more than 80 plaintiffs for a proposed settlement of 31 euros per share as put forth by Deutsche Bank. This move is expected to free up funds and increase Deutsche Bank’s anticipated third-quarter pretax profit by 430 million euros.
Following the announcement of these settlements, Deutsche Bank’s shares saw a 3.95% increase in London, reaching their highest level in a month. This positive movement in share price comes after a sharp drop that occurred after the release of the bank’s second-quarter results in which it reported its first net loss in four years. This loss was largely attributed to a 1.3 billion euro provision for the Postbank cases, with the largest individual plaintiff representing around a third of the claims against the bank.
The suits against Deutsche Bank were brought by various institutional and private investors who claimed that the bank underpaid during its acquisition of Postbank, a German retail bank with millions of clients. The amalgamation of the two institutions occurred in 2018. Settlement agreements with additional plaintiffs could lead to further positive implications on the total provisions earmarked for the litigation, according to the bank.
Deutsche Bank officials expressed their satisfaction with the settlements, noting the substantial reduction in costs and risks associated with the Postbank takeover litigation. The positive repercussions of the settlements are expected to benefit the bank’s earnings and capital position, indicating an improvement in its capital plan. This increase in capital will prompt a review of distribution plans that will be discussed with regulators in ongoing dialogues to maintain a focus on franchise momentum, operating performance, and rewarding shareholders.
Financial analysts at JPMorgan welcomed the settlement, estimating that it would add approximately 10 basis points to Deutsche Bank’s common equity tier 1 capital, which stood at 13.5% at the close of the second quarter. They viewed the settlement as a move in the right direction to resolve a longstanding litigation matter. However, they cautioned that ongoing capital generation would be necessary for the market to be comfortable with increased payouts, considering factors like the European Central Bank’s industry-wide leveraged finance review.
Despite the recent settlements, a significant portion of claims from the Postbank acquisition case remains outstanding. The Higher Regional Court of Cologne initially dismissed all claims in 2020, but this ruling was overturned by Germany’s Federal Court of Justice in 2022, leading to a revisit of the case. Jan Bayer, a senior partner at the law firm representing a majority of the institutional claimants, stated that his clients had rejected the settlement offers.
While Deutsche Bank’s recent settlements have provided some relief in a long-standing legal battle, the resolution of the Postbank acquisition case remains ongoing. The financial implications, shareholder rewards, and regulatory considerations resulting from these settlements will continue to shape Deutsche Bank’s future strategies and decisions.
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