It's clearly a major burden for Germany's banks, but the extent of the pain is only gradually coming to light.
Following a ruling by Germany's highest court in October, which concluded that customers are entitled to reclaim improper fees that banks had levied on loans, it is already clear that about a dozen banks will incur total costs of more than half a billion euros.
Commerzbank, Germany's second-largest bank, was the latest to come clean. At a press briefing on its annual results on Thursday, the bank announced that it had formed €75 million in reserves to cover the costs, an increase over the €35-million precautionary reserve the lender had already formed in the fourth quarter of last year.
"We modified our policies on fees and charges relatively early on, namely in 2012. As a result, the ruling hasn't affected us quite as much in this regard," said Martin Zielke, head of the retail customer business segment. He noted that 94,000 customers have already contacted the bank.
Deutsche Bank, Germany's largest bank, had previously announced that it set aside a significantly higher charge against earnings. By the end of the 2014 financial year, the costs associated with the lawsuit had amounted to €400 million, with about €150 million allocated to its Postbank subsidiary. The court ruling had apparently caught the bank entirely off guard.
In May 2014, Germany's Federal Court of Justice (BGH) ruled that banks were no longer entitled to assess processing fees on installment loans. But the real shock to banks came in October, when the BGH decided that customer were entitled to reimbursement of improper fees, even for loans reaching back to 2004.
The court ruling had apparently caught Deutsche Bank entirely off guard.
Stiftung Warentest, a German consumer testing organization, has estimated that bank customers may reclaim as much as €13 billion in unwarranted fees from banks. But the clock was ticking for lenders, because the restitution claims for old loan agreements concluded until 2011 became statute-barred on December 31, 2014. Claims began piling up at banks around Christmas. The lenders have now begun disbursing payments, but the claims could still take months to process.
The true extent of the costs has yet to become clear. Next to Deutsche Bank and Commerzbank, the largest consumer lenders in Germany include Targobank, Santander Consumer Bank, Credit Plus and Teambank. All four institutions plan to release detailed figures in the coming weeks.
Credit Plus estimates that the reimbursements will cost it a sum in the low double-digit millions, which will affect earnings. Teambank also anticipates an adverse impact on earnings. However, a spokeswoman for Teambank, which partners with the Volksbank and Raiffeisenbank cooperative banks, said that the lender is only "partly affected" by the issue, because it had already eliminated the processing fees in 2010.
In a footnote to its annual financial statement, the French banking giant BNP Paribas estimated the special charge at €49.5 million to cover costs that would be incurred by its Essen-based German subsidiary, along with Commerz Finanz, a joint venture with Commerzbank for consumer loans. The ruling has had no effect on Dutch bank ING-Diba, however. "We haven't been charging any fees since 2004," said chief executive Roland Boekhout on Wednesday.
The associations that represent Germany's large network of savings banks and cooperative banks have said that they are not as strongly affected by the ruling as the private retail banks. However, they too will not release their figures until a few months from now.
"We predict that there will be no need to form significant risk reserves in this area, and we estimate the cost in the low six figures," said a representative of Sparkasse Köln-Bonn, one of the largest savings banks governed by public law. Nearby Kreissparkasse Köln, another savings bank, anticipates "manageable reimbursements."
Stiftung Warentest expects more court decisions are pending that could inflict even more pain on banks.
"I anticipate that the BGH will also declare loan fees for commercial customers and the fees banks have charged in connection with building loan contracts to be invalid," legal expert Christoph Herrmann of Stiftung Warentest recently told the Reuters news agency.
Peter Köhler, Laura de la Motte and Yasmin Osman cover banks and their regulators for Handelsblatt out of Frankfurt. Frank Drost covers banking regulation for Handelsblatt from the capital Berlin. To contact the authors: [email protected], [email protected], [email protected], [email protected]