Deutsche Bank has reached settlements with nearly 60% of the plaintiffs involved in a prolonged legal dispute over the bank's acquisition of Postbank, a German retail banking giant, more than a decade ago. The settlements, announced late Wednesday, mark a crucial step in Deutsche Bank's efforts to put to rest a contentious chapter in its history, one that has cast a long shadow over the institution.
The German banking titan has agreed to pay approximately 31 euros ($34.53) per share to over 80 plaintiffs, a move that will allow it to release funds previously set aside for potential litigation costs. This financial maneuver is expected to bolster Deutsche Bank's third-quarter pretax profit by an impressive 430 million euros, providing a much-needed boost to its financial performance. Following the announcement, Deutsche Bank's shares surged by nearly 3% in trading, reaching their highest levels in a month.
The legal saga traces its roots back to Deutsche Bank's acquisition of Postbank, a deal initiated during the tumultuous period of the 2008 global financial crisis. Postbank, with its millions of customers and deep ties to Germany's postal system, was seen as a strategic asset that would provide Deutsche Bank with a steady domestic revenue stream amidst its global expansion. However, the acquisition quickly turned sour, leading to years of legal battles, consumer complaints, and regulatory scrutiny.
The heart of the dispute lies in allegations from a range of institutional and private investors who claim that Deutsche Bank underpaid for their Postbank shares during the multistage acquisition. These plaintiffs have sought compensation, arguing that the transaction did not reflect the true value of Postbank. The Higher Regional Court of Cologne initially dismissed all claims in 2020, but the decision was later overturned by Germany's Federal Court of Justice in 2022, sending the case back for further review.
The settlements announced this week represent a partial resolution to the legal quagmire, covering about 60% of the claims, including those from the largest individual plaintiff, who represents around one-third of the total claims. Deutsche Bank expressed satisfaction with the outcome, noting that the agreements substantially reduce both the cost and risk associated with the Postbank litigation.
"We are pleased with the settlements we announced today, which substantially reduce the cost and risk of the Postbank takeover litigation and have a positive impact on our earnings and capital position," a Deutsche Bank spokesperson said. The bank also hinted at the possibility of revisiting its distribution plans, including share buybacks, in light of the improved capital situation.
Despite this progress, a significant portion of claims remains unresolved, with some plaintiffs, particularly those represented by senior partner Jan Bayer of Bayer Krauss Hueber, rejecting the settlement offer. Bayer, representing around 50 institutional claimants, dismissed the offer as a "late low ball," and indicated that the acceptance of the settlement by others would have no bearing on his clients' decisions.
The ongoing litigation has had a profound impact on Deutsche Bank's financial performance. In its second-quarter results, the bank reported its first net loss in four years, largely due to the 1.3 billion euro provision it had to make for potential payouts related to the Postbank cases. The bank's shares took a significant hit following that announcement, though the recent settlements have helped to recover some of the lost ground.
Analysts at JPMorgan view the settlements as a positive step, estimating that the resolution could add around 10 basis points to Deutsche Bank's common equity tier 1 capital, a key measure of the bank's solvency. However, they remain cautious about the prospects of a second tranche of share buybacks in 2024, noting that Deutsche Bank would need to demonstrate ongoing capital generation to gain market confidence.
