Deutsche Bank AG will pay about 925 million euros ($1.27 billion) to settle a 12-year-old dispute with the heirs of Leo Kirch over the collapse of his media group, according to two people familiar with the matter.
Deutsche Bank agreed to pay 775 million euros plus interest and costs, the Frankfurt-based company said in an e-mailed statement today. Those items total 150 million euros, said the people, who asked not to be identified as the information isn’t public. Kirch’s family was seeking more than 3.3 billion euros in lawsuits against the lender.
The media entrepreneur, who died in 2011, and his heirs have been fighting Deutsche Bank ever since former Chief Executive Officer Rolf Breuer questioned Kirch’s creditworthiness in a 2002 Bloomberg TV interview. The media group filed for insolvency in the following months. The dispute led to dozens of lawsuits and to criminal investigations, including one by Munich prosecutors over the court testimony of bank executives.
“With today’s agreement, we are resolving a well-known and long-standing legacy matter,” Juergen Fitschen and Anshu Jain, Co-CEOs of Deutsche Bank, said in the statement. “In our judgment, this is in the best interests of our stakeholders.”
Deutsche Bank, Germany’s biggest bank, fell 1.2 percent to 35.12 euros in Frankfurt trading at 5:03 p.m. The shares have declined 3 percent in the last 12 months compared with a 14 percent increase for the 43-member Bloomberg Europe Banks & Financial Services Index.
“We welcome the settlement even though we wish it was reached while Mr. Kirch was still alive,” a spokesman for the family said. “The damage caused is much higher though.”
The settlement, after existing provisions, will widen Deutsche Bank’s fourth-quarter loss by about 350 million euros, the company said in the statement.
The amount “was higher than I had expected,” Stefan Bongardt, an analyst with Independent Research GmbH in Frankfurt who recommends investors hold the stock, said by phone today. “That might weigh on investors initially but it is good for them to get litigation like this out of the way.”
Deutsche Bank had 2.3 billion euros set aside to cover fines and settlements at the end of 2013, the company said in a statement last month. It posted a 958 million-euro loss for the fourth quarter due to other legal expenses and accounting charges.
The bank will make progress on dealing with legal issues this year, according to the statement published today. Deutsche Bank has yet to resolve probes into alleged attempts to rig benchmark interest rates and currencies. It also faces allegations it didn’t adequately describe U.S. mortgage-backed securities sold to clients.
The Munich Higher Regional Court in December 2012 ruled the lender and Breuer were liable for the statements in the TV interview. The judges at the time didn’t rule on how much damages were due and said this would be determined in a separate step. Deutsche Bank, which denies wrongdoing, had asked Germany’s top civil court to hear an appeal in that case.
“The Kirch group’s lawyers plastered Deutsche Bank with lawsuits,” Michael Seufert, an analyst with Norddeutsche Landesbank who recommends investors hold the stock, wrote in an e-mailed report. “They also turned the bank’s annual shareholder meetings into secondary theaters of war and filed a series of challenges to their resolutions.”
The family scored a victory in April when Deutsche Bank was forced to repeat its 2012 shareholder meeting at a cost of about 5 million euros because former supervisory board chairman Clemens Boersig stopped one of their lawyers from speaking.
The lawsuits brought by the Kirch family alleged the bank secretly plotted to bring about the end of his media empire or to use that threat to force him to appoint the lender as a restructuring adviser. Part of the conspiracy, they argue, was the Bloomberg TV interview.
Christian Hamann, an analyst at Hamburger Sparkasse who recommends investors hold Deutsche Bank shares, said before the settlement was announced that he remembered Breuer’s comments at the time.
“I was at a seminar and as I walked out, I heard the TV interview. I had no idea that it would ever result in Deutsche Bank having to make such a payment,” said Hamann, who in 2002 was an analyst focusing on the insurance industry at Bayerische Landesbank. “The remarks seemed like something everyone knew already. But that has changed over the years as the court got tougher and tougher.”
The Munich suit that yielded the 2012 ruling led to a separate criminal probe into the bank’s executives. Fitschen, Breuer, former CEO Josef Ackermann, ex-chairman Clemens Boersig and former board member Tessen von Heydebreck are under investigation for their testimony in the case. Deutsche Bank has denied wrongdoing by any of them.
While today’s settlement will end legal disputes between the Kirch heirs and the bank, the criminal probe isn’t affected by the agreement.
“Their readiness to settle may also reflect a desire to end the investigation of Fitschen,” Bongardt said. “I can imagine that they may be more willing to do so now.”
In a separate case, the Federal Court of Justice said in 2006 that Breuer’s comments on TV violated his duty not to endanger the creditworthiness of a bank client. That ruling referred to a Kirch unit to which Deutsche Bank had lent money. That case was also pending in Munich.
Deutsche Bank rejected a settlement offer in 2012. The lender and Kirch’s family discussed a possible 800 million-euro deal, a person with knowledge of the negotiations said at the time. The Frankfurt-based bank in 2011 was said to have rejected a 775 million-euro accord proposed by the Munich court.
“This lawsuit is one of the most expensive examples of why it isn’t just sensible but also economically beneficial not to lose sight of the basic principles of banking,” wrote Seufert at NordLB. “Management wants to deal with more legal issues in 2014. That will continue to weigh on the bank’s earnings.”