Deutsche Bank on Thursday plans to announce a surprise charge against earnings of more than €100 million ($112 million) to repay customers for improper fees it levied on loans over a decade, Handelsblatt has learned.
The decision to set aside the money followed a German court ruling in October, which concluded that customers are entitled to reclaim administrative fees on loans issued by Germany's largest bank.
The ruling is said to have caught Deutsche Bank by surprise. In its fourth-quarter earnings report, the bank Thursday will estimate costs from the lawsuit, which sources said will likely run in the triple-digit millions of euros.
The charge is another setback for Germany's largest bank, which has been dogged by mounting legal costs from as many as 1,000 lawsuits stemming from its investment banking activities over the last decade. The bank, based in Frankfurt, had already set aside about €3 billion to cover legal costs.
The latest German court ruling will significantly boost that amount and weigh on earnings at a time when the bank is contemplating a fundamental reorganization and sale of large portions of its business, including its German retail unit, Postbank.
“The decision caught Deutsche Bank on the wrong foot – it hadn’t built enough provisions, meaning the repayment demands from customers will now rain down on the fourth-quarter results,” said a financial source in Frankfurt with knowledge of the bank's plans who declined to be named.
A spokesperson for Deutsche Bank declined to comment for this story.
Germany’s Federal Court of Justice in Karlsruhe at the end of October ruled that the administrative fees Deutsche Bank had imposed on consumer loans were illegal under German law. It extended the statute of limitations for customers reclaims fees on loans issued as far back as October 2004.
The ruling affects not only Deutsche Bank but much of Germany’s financial sector, which had imposed the fees as a standard practice. Stiftung Warentest, a German consumer testing organization, estimates that bank customers may reclaim as much as €13 billion in unwarranted fees from banks.
The costs from the latest lawsuit are likely to further erode earnings at Deutsche Bank’s private and business clients unit, which is run by Rainer Neske, a member of the bank's management board.
Excluding the new costs, Deutsche Bank had been expected to post a second consecutive quarterly loss when it reports fourth-quarter results tomorrow.
Analysts surveyed by Bloomberg had projected that Deutsche Bank before the latest ruling would report a fourth-quarter loss of €482 million.
The legal troubles could not have come at a worse time for Mr. Neske, who is embroiled in a dispute with the bank's management board over the future of its consumer lending operations.
Until now, most legal costs facing the bank have come from its investment banking operations.
Deutsche Bank is expected to announce a major overhaul in June, and all options -- including asset sales -- are reportedly on the table.
Peter Köhler leads Handelsblatt's banking coverage in Frankfurt. Christopher Cermak, who covers finance for Handelsblatt Global Edition, contributed to this story. To contact the author: [email protected]