March 20, 2013 / 10:40 AM / 5 years ago

Lawsuits force Deutsche Bank to restate 2012 profits

FRANKFURT (Reuters) - Deutsche Bank cut its previously reported 2012 pretax profit by 600 million euros ($773 million) on Wednesday, hit by new charges related to mortgage-related lawsuits and other regulatory investigations.

File photo of the headquarters of Deutsche Bank in Frankfurt December 8, 2011. REUTERS/Ralph Orlowski/Files

Europe’s biggest bank by assets declined to lay out in detail why it had increased litigation provisions to 2.4 billion euros, forcing it to correct a January 31 earnings report which already showed the worst quarterly loss in four years.

Its shares rose as investors welcomed the efforts to put a figure on the legal and regulatory exposure. The bank said its dividend would not be affected.

Deutsche and several other lenders face a string of lawsuits and investigations related to their role in selling bonds backed by U.S. subprime mortgages.

Clients who bought the mortgage-backed securities from Deutsche feel they were misled about the quality of the assets, which rapidly lost value after the U.S. mortgage market collapsed between 2006 and 2009.

Credit Suisse analysts estimated Deutsche Bank could face litigation costs of $2.1 billion related to U.S. mortgages.

Legal steps taken against other lenders involved in mortgage-related litigation forced Deutsche to revise its legal provisions, sources familiar with the matter said.

The bank increased the provisions because it was more likely that it would have to pay plaintiffs to settle similar disputes and backdate the payments to 2012, the sources said.

In November, a U.S. judge rejected bids by Deutsche and Goldman Sachs to dismiss a federal regulator’s lawsuits accusing them of misleading mortgage giants Fannie Mae and Freddie Mac into buying billions of dollars of risky debt.


The sources also linked Deutsche’s higher provisions to investigations of suspected manipulation of the interbank lending rates Libor and Euribor and the increased likelihood of fines by regulators.

“But a settlement with the authorities (on Libor and Euribor) is not imminent,” one of the people familiar with the matter said.

U.S. and British regulators have fined three banks to date - RBS, Barclays and Switzerland’s UBS - a total of $2.6 billion for allowing traders to manipulate Libor interbank rates in a global scam.

Germany’s financial regulator has said it would pass preliminary findings from a probe into suspected manipulation of interbank lending rates to the German finance ministry by the end of March.

After a supervisory board meeting on Tuesday, Deutsche Bank cut its 2012 pretax income to 784 million euros and net profit to 291 million euros.

The bank reaffirmed an 8.5 percent target for its equity tier 1 capital ratio, a measure of its safety buffer for potential loan defaults, for the end of March.

Deutsche Bank’s shares were up 2.3 percent at 1256 GMT. Kepler Capital Markets analyst Dirk Becker said there was some relief among investors at Deutsche Bank’s continued commitment to underpinning its capital ratio.

Europe’s banks are shedding risky assets to avoid having to set aside extra capital.

In January, Deutsche Bank announced one-off charges of almost $4 billion to adjust the valuations of risky assets in an attempt to shrink its balance sheet.

($1 = 0.7760 euros)

Reporting by Edward Taylor, Arno Schuetze and Philipp Halstrick; Editing by Tom Pfeiffer

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