Deutsche Bank takes billions in provision for Postbank lawsuit

Deutsche Bank is setting aside 1.3 billion euros now that the bank is in danger of losing the case in a long-running legal dispute surrounding its subsidiary Postbank. The commission is accompanied by a strong profit alarm.

Deutsche Bank

will record a provision of 1.3 billion euros in its books this quarter, to cover legal costs and damages that may arise from a long-running case involving its subsidiary Postbank.

“This will impact profitability for the second quarter and the full year, as well as capital buffers,” it said in a profit warning issued late Friday evening. The German major bank says that the exact size of the amount is not yet clear. The maximum provision of 1.3 billion euros is approximately equal to 30 percent of the net profit that analysts predict for Deutsche Bank this year.

The decision follows a hearing in which the Cologne Court indicated that it would partially side with the plaintiffs in a lawsuit brought by Postbank shareholders.

The legal dispute over the acquisition of Postbank has been simmering for more than ten years. Deutsche Bank took over the retail bank in several steps. Sixteen Postbank shareholders felt left out and went to court. They had accepted a takeover offer of 25 euros per share in 2010, but now want to get 57.25 euros, the price at which Deutsche Bank took a majority stake in the bank in 2008.

The setback comes as CEO Christian Sewing aims to boost profitability and increase shareholder payouts. On Thursday, Deutsche Bank shares rose to 16.5 euros, the highest level in six years.

Given the complexity of the Postbank case, Deutsche Bank will “continue to monitor the legal arguments and the potential impact on financial results,” the statement said. The bank says it does not expect any significant impact on its strategy and financial objectives.

A decision to set aside the full amount of 1.3 billion euros
would reduce an important capital buffer (the Common Equity Tier 1 ratio, ed.) by approximately 20 basis points, the bank adds, which would bring the ratio to 13.4 percent. This is still well above the minimum targets set in the Basel III standards.