Deutsche Bank falls amid Postbank litigation concerns

Deutsche Bank falls: Deutsche Bank shares dropped as much as 6 per cent by midday on Monday, following reports that a longstanding lawsuit related to its acquisition of the Postbank division could result in significant financial implications, potentially amounting to 1.3 billion euros.

The development comes as a setback for Germany's largest lender, which recently reported better-than-expected earnings, leading to an uptick in its share value. However, the resurgence of litigation issues surrounding Postbank adds to a series of challenges the bank has faced in relation to this division.

Analysts at JPMorgan and RBC responded to the news by lowering their target prices for Deutsche Bank, despite maintaining an "overweight" and "outperform" rating for the bank, respectively. RBC analysts expressed disappointment that the bank's improved performance and favorable operating environment were overshadowed by legacy litigation from the past.

Deutsche Bank initiated the acquisition of Postbank, a no-frills banking entity with a substantial client base and historical ties to Germany's postal system, during the global financial crisis of 2008. The aim was to expand its market presence in Germany and secure a stable income source amidst previous international expansion efforts. However, Postbank has since become a source of various challenges, including consumer complaints, regulatory scrutiny, labour disputes, and now, potentially costly legal battles.

In an unexpected move on Friday, Deutsche Bank announced that it would set aside provisions to address potential claims arising from the litigation following oral arguments at a hearing earlier in the day. The bank reiterated its strong disagreement with any claims of underpayment but acknowledged that claims amounting to approximately 1.3 billion euros had been made.

Deutsche Bank disclosed that these provisions would impact its second-quarter and full-year profitability. Additionally, in a separate announcement on Sunday, the bank stated that it would carefully consider options for a potential settlement and indicated uncertainty regarding the possibility of conducting another share buyback in 2024 in light of the recent developments.

Analysts at KBW speculated that a second buyback might be scrapped altogether given the circumstances.

(With Reuters inputs)