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Deutsche Bank warned late Friday that up to a fifth of its expected pre-tax profit could be lost in 2024 as it braces for defeat in parts of a long-running shareholder dispute over its ill-fated takeover of domestic rival Postbank in 2010.
The profit warning comes a day after Deutsche Bank reported its highest quarterly profit in 11 years and its shares rose more than 8 percent to their highest level in seven years.
But on Friday the lender said it would book a provision of up to 1.3 billion euros after a court in Cologne suggested the bank would lose parts of a complex legal battle over what it could give to other shareholders of the German bank The private customer lender Postbank paid for the shares and did not yet own it.
Deutsche Bank said it would now try to cover this risk, but did not provide a final provision amount. It warned that “the total amount of all claims, including accumulated interest, is approximately 1.3 billion euros.”
This compares with the 6.8 billion euros of pre-tax profit analysts expect in the lender’s full-year results and would cut Tier 1 capital ratio – a key measure of balance sheet strength – by 20 basis points, pushing it down to 13.25 percent.
The court’s assessment points to another Postbank-related breakdown for Deutsche Bank. At the end of 2023, conflicts arose with the German financial regulator BaFin due to the botched integration of Postbank’s IT systems. This process led to many customers being locked out of their accounts, significant disruption to internal workflows, and a dramatic increase in the number of customer complaints to the regulator.
BaFin sent a special observer to monitor Deutsche’s improvement efforts and publicly reprimanded the lender. Deutsche Bank said on Thursday that most of the problems had been resolved, adding that the financial burden on the bank from the disruption had so far been more than 100 million euros.
Former Postbank shareholders have been claiming for 14 years that Deutsche Bank paid too low a price for their shares. They argue that the bank gained de facto control years ago when it was in the process of buying out the remaining minority investors. The investment was made for the first time in 2008 with the option to increase it later, which was done in three steps until 2010
They claim that Deutsche Bank ignored an obligation under German law to make a mandatory takeover offer to remaining shareholders at a time when Postbank’s shares were trading at 57.25 euros, while Deutsche Bank eventually Paid 25 euros.
The lawsuits were originally dismissed by courts in Cologne in 2011 and 2012, but these judgments were later annulled by the Federal Court of Justice. Deutsche Bank lost another lawsuit in 2017 but appealed, leading to another series of lawsuits.
The lender now expects defeat in the final round as the court in Cologne has “indicated that it may consider parts of these claims valid in a later judgment”.
The bank said Friday that it “continues to strongly disagree” with the plaintiffs’ view. She added that she had not yet fully analyzed the legal arguments or the financial impact of the court opinion, but that management did not expect “a material impact on the bank’s strategic plans or the full year,” although earnings in the second quarter and “Financial goals would suffer for the year as a whole.”
Most of Deutsche Bank’s published financial goals – such as reducing the cost-income ratio to 62.5 percent and increasing the return on equity to more than 10 percent – are targeted for 2025, but the one-off effect from the Postbank issue has already been felt this year.
However, the provision could impact the lender’s October 2023 promise to increase dividends and share buybacks by an additional €3 billion by 2025, on top of the €8 billion already pledged.