Deutsche Bank has managed to reach agreements with nearly 60% of the plaintiffs involved in a case that has been ongoing for more than a decade. The case revolves around allegations that the German lender underpaid for its acquisition of Postbank. This settlement involves more than 80 plaintiffs agreeing to a settlement of 31 euros per share, as proposed by the bank. This move is expected to significantly impact Deutsche Bank’s anticipated third-quarter pretax profit, with an increase of 430 million euros. As a result, Deutsche Bank’s shares rose by 3.95% in London, reaching their highest level in a month.
The settlement agreements reached with additional plaintiffs could potentially have further positive implications on the total provisions taken for the litigation, according to the bank. This development is crucial for Deutsche Bank as it will help in reducing the cost and risk associated with the Postbank takeover litigation. A spokesperson for Deutsche Bank expressed satisfaction with the settlements, emphasizing the positive impact it will have on the bank’s earnings and capital position. This improvement in the capital plan will prompt a review of distribution plans, which will be discussed with regulators as part of an ongoing dialogue.
Analysts at JPMorgan view the settlement as a positive step that will aid in resolving a long-standing litigation issue. They estimate that the settlement could add approximately 10 basis points to Deutsche Bank’s common equity tier 1 capital, which stood at 13.5% at the end of the second quarter. Despite this positive development, JPMorgan does not assume that the settlements will lead to a second tranche of share buybacks in 2024. The bank would need to demonstrate ongoing capital generation for the market to be comfortable with increased payouts, especially given potential overhangs such as the European Central Bank’s industry-wide leveraged finance review.
The Postbank claims have been looming over Deutsche Bank for more than a decade, creating uncertainty and financial implications for the institution. Even though the Higher Regional Court of Cologne dismissed all claims in the proceedings in 2020, the ruling was overturned by Germany’s Federal Court of Justice in 2022. This decision led to a reevaluation of the case by the Higher Regional Court, leaving a substantial number of claims still pending. Jan Bayer, a senior partner at the law firm Bayer Krauss Hueber representing predominantly institutional claimants, mentioned that his clients have rejected the settlement offered by Deutsche Bank.
The settlements reached by Deutsche Bank with a majority of the plaintiffs in the long-running case concerning the underpayment for the acquisition of Postbank have significant financial implications for the institution. While the agreements are expected to boost the bank’s third-quarter pretax profit and improve its capital position, there are still outstanding claims that need to be addressed. The settlement underscores the importance of resolving legal disputes efficiently to reduce costs and risks for financial institutions.
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