Deutsche Bank Shareholders Criticize Bank’s High Legal Costs
Shareholders of Deutsche Bank (DB) Thursday hit out against the high amount of legal provisions that are eating into the bank’s profits and questioned whether they will be enough for the numerous legal disputes the bank is involved in.
Union Investment fund manager Ingo Speich, who represents more than 8 million shares in Deutsche Bank, or about 0.9% of the equity capital, said the trust in the bank has been substantially undermined due to legal disputes, allegations of fraud and market manipulation, police raids and excessive bonus payments.
Mr. Speich, echoing comments made by other shareholders in the crowded Frankfurter Festhalle, asked whether Deutsche Bank’s litigation costs in 2013 would be below the 2012 figure.
The bank said it was difficult to predict 2013 litigation costs. It had said, though, that litigation costs will remain high and that the first-quarter figure of EUR132 million shouldn’t be taken as an indication for the full-year rate.
In 2012, legal provisions of 2.6 billion euros ($3.4 billion) were more than 10 times the net profit of EUR237 million.
Deutsche Bank has set aside some EUR3.7 billion for potential future litigation-related costs such as for its U.S. mortgage business and some unrelated regulatory investigations.
The German bank is involved in numerous legal disputes and regulatory investigations on both sides of the Atlantic, such as into alleged manipulation of interbank lending rates. It has also received subpoenas and requests for information related to its U.S. mortgage securities business. Its first-quarter report lists nearly two pages of legal cases related to mortgages and asset-backed securities alone. It has said it is cooperating with these investigations.
Credit Suisse analysts estimate that U.S. mortgage litigation could cost Deutsche Bank around $2.1 billion and that total litigation risk could be $3.8 billion. Exane BNP Paribas analysts have put the bank’s total litigation risk in the region of EUR5 billion. A spokesman, asked to comment on the estimates, referred to the bank’s published figures for litigation provisions.
German investigators in December carried out a high-profile raid of the bank’s premises, as part of a probe into cross-border trading of carbon-emissions certificates, after some of the bank’s clients were convicted of tax fraud. Deutsche Bank has said it is cooperating with the investigation.
For more than a decade, the bank has been involved in a legal dispute with Germany’s Kirch Group, which the bank says has already cost a double-digit million euro amount, plus about the same sum for auditing firms. In 2012, Deutsche Bank rejected a deal that would have meant it paying EUR800 million. In December, a German judge ordered the bank to pay damages to Kirch, with the amount determined by an outside expert. The bank may have to pay as much as EUR1.5 billion.
Several shareholders criticized that a number of long-time supervisory board members with an excessive number of board seats are up for re-election.
Shareholders also asked for more clarity on how “cultural change” is happening. The bank already changed its remuneration system to cap bonus payments and make overall pay more long-term oriented. But more will be needed to ensure previous bonus excesses wont happen again, shareholders say.
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