Union Investment GmbH, Deutsche Bank AG’s 12th-largest shareholder, said it was among investors growing impatient over legal bills and capital increases at Europe’s biggest investment bank.
“The patience of shareholders and investors is slowly wearing out,” Union Investment fund manager Ingo Speich said in a speech addressing Deutsche Bank’s co-Chief Executive Officers Anshu Jain and Juergen Fitschen at the firm’s annual shareholder meeting in Frankfurt today. “Mr. Fitschen and Mr. Jain, when will this nightmare finally end?”
Deutsche Bank was involved in about 180 regulatory proceedings and about 1,000 lawsuits, each involving claims of more than 100,000 euros ($136,580) against the company at the end of the first quarter, Chief Financial Officer Stefan Krause told shareholders today. He declined to say how long it will take the bank to clear the cases or quantify their final cost.
Deutsche Bank, which announced four days ago that it will raise 8 billion euros from investors, says capital is needed to meet stricter regulatory standards and grab market share in fixed income. Legal costs, which totaled 3 billion euros last year, have hampered efforts to build capital as the firm faces probes along with other banks for allegedly manipulating benchmark interest rates and currency markets.
Shares of Deutsche Bank rose 0.5 percent to 30.35 euros at 5:22 p.m. in Frankfurt, crimping a decline this year to 13 percent. That’s the second-biggest fall among the 43-member Bloomberg Europe Banks & Financial Services Index after National Bank of Greece SA’s 43 percent decrease.
“As if the list of demands on shareholders wasn’t long enough, there’s the 8 billion-euro share sale to digest,” said Speich, who helps manage 212 billion euros of stocks and bonds. “Had the top management had a better reputation, the bank would probably have been able to make do with less.”
Union Investment, the fund manager of Germany’s cooperative banks, holds 0.8 percent of Deutsche Bank’s stock, data compiled by Bloomberg show.
Deutsche Bank sold about 10 billion euros of stock to shareholders in 2010 to fund the purchase of Deutsche Postbank AG. Jain and Fitschen started as co-CEOs in June 2012. They sold almost 3 billion euros of shares in April last year to raise capital levels.
Speaking to shareholders at the meeting, Fitschen defended the latest share sale, saying “it’s critical that we address tighter capital requirements in good time.”
Deutsche Bank is wrong to stick with “an old idea” of chasing market share in investment banking when other banks are shrinking the business and adopting new strategies, Peter Braendle, who oversees about 500 million euros at Swisscanto Asset Management in Zurich, including Deutsche Bank stock, said on May 19.
Jain, 51, was previously head of the investment bank, at the center of several of the legal investigations. An internal probe into interest-rate fixing cleared top executives of any wrongdoing. The bank’s wider investigations into alleged attempts to rig rates have yet to conclude, Krause said.
“We’re beginning to see that not everything that glitters is gold at Deutsche Bank and that the years-long legal disputes leave strong brake marks in our numbers,” said Klaus Nieding, a vice president of DSW, a German proxy-voting agent representing shareholders with about 500 million euros invested in Deutsche Bank and other companies. “This company is not a gigantic legal department with a bank attached.”
Deutsche Bank expects “continuing headwinds in legal issues,” Krause said. The bank’s litigation costs this year will probably be similar to their level last year, he said on a conference call with analysts earlier this week. The company had 1.8 billion euros set aside to cover costs from fines and settlements at the end of March, its filings show.
Bank of America Corp cut Deutsche Bank’s shares to underperform from neutral on May 19, saying the planned sale of stock “merely fills holes” in capital and the revenue outlook remains challenging. Mediobanca SpA raised its recommendation on the stock to neutral from underperform today, saying the share sale will “put the capital concerns behind the bank.”