Deutsche Bank is facing a potential profit loss of up to 20% of its expected 2024 pre-tax earnings due to a long-running shareholder lawsuit over its 2010 takeover of Postbank. This warning comes just a day after the bank reported its highest quarterly profit in 11 years. The lawsuit, which has been ongoing for 14 years, concerns the price Deutsche Bank paid for Postbank shares, with former shareholders arguing that the bank had gained de facto control of the bank before making a mandatory takeover offer. The Cologne court has indicated that elements of the claims may be valid, causing Deutsche Bank to set aside a provision of up to €1.3bn. This provision may affect the bank's October 2023 promise to increase dividends and share buybacks by an additional €3bn. The bank continues to disagree with the plaintiffs' view but has not yet fully analyzed the financial impact of the court's opinion.
Key Takeaways
- Deutsche Bank may lose up to 20% of its 2024 pre-tax profit due to a shareholder lawsuit over its 2010 takeover of Postbank.
- This warning comes after DB reported a quarterly profit of €6.8bn, the highest since 2011.
- A Cologne court hinted at Deutsche Bank's defeat in the case, resulting in a €1.3bn provision.
- The provision may lower Deutsche Bank's common equity tier one to 13.25%, a 20 basis point drop.
- The lawsuit, initially rejected in 2011, is now in its final stages, with Deutsche Bank preparing for loss and a financial impact in 2023.
Analysis
Deutsche Bank's (DB) 2024 earnings could decline by 20% due to a long-standing shareholder lawsuit over its 2010 Postbank acquisition. DB's victory in the initial 2011 case was overturned, with a Cologne court indicating plaintiff's claims may hold merit. DB has set aside €1.3bn, potentially decreasing its Common Equity Tier One ratio to 13.25%. DB's October 2023 promise of increased dividends and share buybacks might be affected, and the financial sector, particularly competitors and investors, will closely monitor the lawsuit's outcome. Ultimately, the long-term impact will depend on the case resolution and DB's ability to manage any financial consequences.
Did You Know?
- Shareholder lawsuit: A lawsuit brought by shareholders of a company against the company or its management, alleging wrongdoing or misconduct that has harmed the shareholders. In this case, former shareholders of Postbank are suing Deutsche Bank over the price it paid for Postbank shares in 2010.
- Provision for legal risks: A provision is a reduction in profits to account for a liability that an entity expects to incur in the future. When a company like Deutsche Bank anticipates a potential loss from a legal case, it may set aside a provision in its financial statements to account for the estimated cost of the loss. In this case, Deutsche Bank has set aside a provision of up to €1.3bn to cover the potential costs of the shareholder lawsuit.
- Common equity tier one (CET1) ratio: A key financial metric used by regulators to assess the strength and stability of a bank. The CET1 ratio measures a bank's core equity capital as a percentage of its risk-weighted assets. A higher CET1 ratio indicates a stronger financial position, while a lower CET1 ratio suggests greater risk. If Deutsche Bank's provision for the shareholder lawsuit reduces its CET1 ratio, it may need to raise additional capital or reduce its risk-weighted assets to meet regulatory requirements.