Deutsche Bank AG
) put an end to the legal tussle with heirs of media mogul Leo
Kirch by paying a sum of €775 million ($1.06 billion), excluding
interest and legal fees. The latest settlement has resolved one
of Germany's hostile corporate disputes, which dragged on for
more than a decade.
Leo Kirch - who passed away in 2011 - and his family were
claiming more than €3.3 billion in damages from Deutsche Bank,
related to Kirch Group's bankruptcy. The media conglomerate
allegedly believed that its insolvency was the aftermath of Rolf
Breuer's (the then CEO of Deutsche Bank) comments in a televised
interview in 2002.
The settlement is consistent with the Frankfurt-based lender's
target of resolving its long list of pending claims,
investigations and fines that have proved to be an expensive
overhang to its earnings.
The settlement will consume a major part of the company's €2.4
billion in reserves set aside for future litigations. Including
the aforementioned settlement, Deutsche Bank has paid almost €6.0
billion in fines and claims since 2012.
The bank will charge for the settlement in its fourth 2013
results, pushing it deeper into loss (after tax) by €350 million.
Notably, on Jan 19, Deutsche Bank had reported a net loss of €965
million ($1.3 billion) in the final quarter of 2013 as it was hit
by substantial legal and regulatory costs.
The Background Story
In 2002, while participating in the World Economic Forum, Breuer
appeared to raise questions about the creditworthiness of Kirch
Group in a televised interview. During that time, Kirch Group was
a client of Deutsche Bank.
Later that year, Kirch Group declared bankruptcy due to
staggering debts related to the costly film rights deals and a
misjudged foray into pay-television.
Even though information about the Kirch Group's troubles had been
reported in the media before Breuer's interview, Leo Kirch
alleged that Deutsche infringed confidentiality rules under
German regulations. Additionally, the media group charged the
bank for trying to tarnish its reputation and alleged that the
CEO's comments led other creditors to withdraw funding.
Kirch Group also claimed that the statement made by Breuer was
part of a conspiracy to force it into bankruptcy, so that
Deutsche Bank could gain significantly by helping it to
The lawsuit settlement by Deutsche Bank reflects its endeavors to
resolve legacy litigation issues and thereby reduce legal costs
over the coming period. Further, the settlement reduces the
bank's burden of litigations, which include manipulation of the
Libor benchmark interest rate and dubious sales of mortgages in
However, the case still represents some risk for Jürgen Fitschen,
the current co-chief executive of Deutsche Bank, as Munich
prosecutors launched a separate investigation in Nov 2013, into
whether he gave false evidence related to the Kirch case.
Deutsche Bank currently carries a Zacks Rank #3 (Hold). Some
better-ranked foreign banks include
HDFC Bank Ltd.
Mitsubishi UFJ Financial Group, Inc.
The Royal Bank of Scotland Group plc
). All of these carry a Zacks Rank #2 (Buy).
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