Deutsche Bank recently announced that it has reached settlements with nearly 60% of the plaintiffs involved in a long-standing case concerning the acquisition of Postbank over a decade ago. The settlement agreement includes more than 80 plaintiffs who have agreed to accept 31 euros per share, as proposed by the bank. This move is expected to boost Deutsche Bank’s anticipated third-quarter pretax profit by 430 million euros.
Following the announcement of the settlements, Deutsche Bank’s shares saw an increase of 3.95% in London, reaching their highest level in a month. This positive momentum comes after the bank reported its first net loss in four years in the second quarter, mainly due to a 1.3 billion euro provision for Postbank cases. The settlement with the largest individual plaintiff, representing around a third of the claims, is a significant step towards resolving the long-standing litigation.
According to Deutsche Bank, additional settlement agreements with other plaintiffs could have further positive implications on the total provisions taken for the litigation. The bank expressed its satisfaction with the settlements, stating that they substantially reduce the cost and risk associated with the Postbank takeover litigation and have a positive impact on earnings and capital position. This improvement in the capital plan will prompt a review of distribution plans and discussions with regulators to ensure ongoing positive momentum in the future.
Analysts at JPMorgan noted that the settlement is a positive development that could add around 10 basis points to Deutsche Bank’s common equity tier 1 capital, which stood at 13.5% at the end of the second quarter. While the settlement is viewed as a step in the right direction towards resolving the long-standing litigation, the analysts cautioned against assuming that it would lead to a second tranche of share buybacks in the near future. Deutsche Bank would need to demonstrate ongoing capital generation to gain market confidence and address concerns such as the European Central Bank’s leveraged finance review.
The Postbank claims have been looming over Deutsche Bank for more than 10 years, with a recent ruling by the Higher Regional Court of Cologne in 2020 dismissing all claims in the proceedings. However, this ruling was overturned by Germany’s Federal Court of Justice in 2022, leading to a reconsideration of the case by the Higher Regional Court. While a significant number of claims have been settled, there are still outstanding issues that need to be addressed.
The recent settlements between Deutsche Bank and the plaintiffs in the Postbank acquisition case mark a positive development for the bank. By resolving long-standing litigation issues and reducing costs and risks associated with the acquisition, Deutsche Bank is moving towards a more stable financial position. However, challenges remain, and the bank will need to continue generating capital and addressing legal overhangs to ensure sustained growth and shareholder confidence in the future.
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