Deutsche Bank Settles Kirch Case for $1.06B - Analyst Blog

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Deutsche Bank AG ( DB ) 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 restructure.

Conclusion

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 the U.S.

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. ( HDB ), Mitsubishi UFJ Financial Group, Inc. ( MTU ) and The Royal Bank of Scotland Group plc ( RBS ). All of these carry a Zacks Rank #2 (Buy).



DEUTSCHE BK AG (DB): Free Stock Analysis Report

HDFC BANK LTD (HDB): Free Stock Analysis Report

MITSUBISHI-UFJ (MTU): Free Stock Analysis Report

ROYAL BK SC-ADR (RBS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: DB , HDB , MTU , RBS

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