Deutsche Bank Cuts 2012 Profit on Litigation ReservesNicholas Comfort
Deutsche Bank AG, continental Europe’s biggest bank, cut its reported profit for 2012 after setting aside additional money to cover legal costs linked to U.S. mortgage lawsuits and other regulatory probes.
The company increased the reserves by 33 percent to 2.4 billion euros ($3.1 billion), lowering 2012 profit after tax by about 400 million euros to 291 million euros, the Frankfurt-based bank said in a statement today. The firm reiterated its dividend and capital targets. Christian Streckert, a spokesman, declined to give further details on what prompted the decision.
The world’s biggest banks are facing a series of regulatory probes and lawsuits linked to the alleged manipulation of benchmark interest rates as well as the mis-selling of products such as interest-rate derivatives. Deutsche Bank said in October it’s a defendant in “numerous” civil suits as an issuer or underwriter in residential mortgage-backed securities.
“Deutsche Bank has had to be very careful about litigation given that they’re really in the firing line from investors and regulators on this,” Christian Hamann, an analyst at Hamburger Sparkasse who is advising clients to sell the share, said by telephone from Hamburg, Germany. “They were probably too optimistic when they presented the preliminary numbers, but one can see from the share price that the market isn’t concerned as the targets were confirmed.”
Deutsche Bank closed at 32.44 euros in Frankfurt, up 1.4 percent on the day. The Stoxx 600 Banks Index rose 0.8 percent as European policy makers weighed options for keeping Cyprus in the euro area.
The company also said it reduced contingent liabilities for “significant” legal and regulatory matters by about 500 million euros to 1.5 billion euros as some of them related to claims that were previously disclosed.
European investment banks probably face a total of $11 billion in U.S. mortgage-related litigation costs, analysts at Credit Suisse Group AG including Amit Goel said in an e-mailed report from London today. UBS AG, Switzerland’s biggest bank, faces the largest sum of $3.5 billion and Deutsche Bank $2.1 billion, they said.
The larger provisions reduced Deutsche Bank’s Tier 1 capital ratio, a measure of financial strength under full Basel III rules, to 7.8 percent at the end of 2012 from the 8 percent it had published in January. The firm kept an 8.5 percent target for the end of March and still plans to pay a dividend of 75 cents a share for 2012, according to the statement.
The reaffirmation of the March goal “indicates that first-quarter performance has been strong,” Credit Suisse said. “Although with an increase in European sovereign risk over the last week we see increasing focus on how the second quarter will shape up.”