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Deutsche Bank’s gains from better than expected quarterly results last week were wiped out on Monday after a €1.3bn profit warning sent shares down more than 6 per cent.
Germany’s largest lender said on Friday evening that it would book a provision of up to €1.3bn for a long-running lawsuit over the price it paid to buy out Postbank’s minority shareholders in 2010.
Deutsche’s government-encouraged acquisition of domestic rival Postbank, which happened in stages from 2008 on, has proven one of the worst M&A deals in German banking history.
Postbank shareholders have long argued that Deutsche underpaid when it offered them €25 a share, arguing it had gained control over Postbank at an earlier time when the share price was much higher and had been legally obliged to make a takeover offer at €57.25 a share.
A court in Cologne flagged in a hearing earlier on Friday that “it may find elements of these claims valid in a later ruling”, Deutsche said. The bank said in a statement on Sunday that it “believes its arguments on both facts and law are strong”.
But Deutsche suggested for the first time it might be willing to settle the issue out of court. “The court suggested that the parties should consider entering into settlement negotiations,” the bank said, adding that such an agreement was “possible”.
While the provision would wipe out close to a fifth of the lender’s expected annual pre-tax profit of €6.8bn, it nonetheless “appears manageable”, Citigroup analyst Andrew Coombs said in a research note on Monday. Coombs said the financial hit was equivalent to 2 per cent of the bank’s tangible book value and 4 per cent of its market capitalisation.
Deutsche reiterated on Sunday that its “financial targets for 2025 are unchanged”. Among those targets, unveiled in 2022, was a pledge to spend €8bn on share buybacks and dividends between 2021 and 2025. Last October, the bank also said it hoped to increase distributions to shareholders by up to €3bn by 2025.
On Sunday, Deutsche Bank said it “remains on track to achieve total distributions in excess of €8bn” but did not repeat the €3bn figure.
The long-running court saga over the price paid by Deutsche in 2010 has come with temporary wins for both sides, later overturned by higher courts.
Deutsche’s official rationale for its acquisition of Postbank at the time was that it could use Postbank’s plentiful retail deposits as cheap funding of its investment bank activities.
After that was blocked by regulators and a first attempt at a costly IT integration failed woefully, Deutsche put Postbank up for sale in 2015. After failing to attract a suitable buyer, it reversed that decision two years later and instead kicked off a second attempt to merge its IT systems.
That project has been running for another six years, and issues with the integration last year led to a public reprimand by banking watchdog BaFin. The bank said last week that the issues were largely fixed, but that additional costs linked to the IT project stand at more than €100mn.
