Deutsche Bank Settles 60% of Claims Related to Postbank Takeover

Deutsche Bank DB has achieved notable progress in talks with claimants involved in the legal dispute regarding its takeover of Postbank and the compensation paid to former Postbank shareholders. 

The bank has reached settlement agreements with more than 80 claimants, who collectively make up nearly 60% of all claims in this lawsuit. These agreements are settled upon the bank's suggested price of €31 ($34.5) per share. Among the claimants who agreed to a settlement also represented about one-third of all claims.

In April 2024, Deutsche Bank said that it could face claims up to €1.3 billion ($1.4 billion) in a legal battle with former Postbank shareholders about its 2010 takeover. The former Postbank shareholders argued that a higher price should have been offered.

Deutsche Bank anticipates that the settlement agreements reached so far will burn approximately 45% of the total provisions taken for the claims of plaintiffs covered by the agreements. The remaining provisions linked to these specific plaintiffs will be released. It is expected that this action will positively affect the bank's tax profit for the third quarter by nearly €430 million ($478.6 million). If Deutsche Bank enters into settlement agreements with additional claimants, this could have a positive impact on the overall litigation provisions.

In sync with this news, on Apr 26, 2024, the Higher Regional Court of Cologne looked into claims from former Postbank shareholders. The court hinted that it might back some of these claims in a future decision. Deutsche Bank didn't agree with the court's view. Still, it noted that the court's comments could influence an estimation of future financial outflows. The provision of €1.3 billion for litigation related to the Postbank takeover resulted in a loss in the second quarter of 2024.

Over the past six months, shares of DB have gained 17.1% on the NYSE compared with the industry's growth of 13.4%.

Image Source: Zacks Investment Research

Currently, Deutsche Bank carries a Zacks Rank #2 (Buy).

Due to the nature of its business, Deutsche Bank is involved in litigation, arbitration and regulatory proceedings in Germany and several jurisdictions outside Germany. The bank carried significant legal settlement costs in the past, which adversely impacted its financials. The recent litigation related to the acquisition of Postbank is likely to keep the expense fairly high. As a result, higher legal expenses are expected to continue putting pressure on DB's financials in the near term.

Legal Issues Faced by Other Finance Companies

In the first half of August, Piper Sandler Companies PIPR announced that it has agreed to pay a total civil penalty of $16 million to U.S. regulators for record-keeping failures. To settle investigations into its record-keeping practices, PIPR will pay $14 million to the Securities and Exchange Commission ("SEC") and $2 million to the Commodity Futures Trading Commission ("CFTC").

At the same time, Wells Fargo WFC was also fined for its record-keeping lapses. The crackdown, led by the SEC and the CFTC, underlined the significance of keeping accurate records of employee communications in the financial industry. WFC had incurred the highest penalty among the firms targeted, amounting to $200 million.

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