Deutsche Bank has shelled out €10 billion ($11 billion) in fines and other legal charges over the past three years. But never fear, long-suffering shareholders—the bank has pledged to resolve its biggest pending cases by the end of this year, including a significant one in the US related to mortgage-backed securities sold in the run-up to the subprime crisis. A similar case that Goldman Sachs settled with American authorities earlier this year cost it more than $5 billion.
For its part, Deutsche Bank has set aside €5.5 billion in provisions to cover the costs of future litigation. For years, legal charges have dogged the German lender, explaining the ups and downs in its earnings as much as the actual business of banking:
The bank’s latest quarterly earnings, released today (July 27), beat analysts’ (low) expectations in part because of reduced litigation charges. Still, the bank’s report spent nine pages and more than 6,000 words to explain all of its various ongoing legal entanglements. The word “litigation” was mentioned on the conference call with executives this morning more times than “profit” and “income” combined.
The bank generated a net profit of €256 million for the first half of this year, a drop in the bucket compared with its record-setting loss of nearly €7 billion in 2015:
Deutsche Bank’s struggles matter far beyond its Frankfurt base. The IMF said last month that, essentially, it is the most dangerous bank in the world. Specifically, of the banks big and connected enough to threaten global financial stability, Deutsche Bank is the riskiest.
Over the past year, the bank’s shares have sank to an all-time low, erasing some €24 billion in market value over that time. The legal charges still hanging over the bank won’t make the deep restructuring now underway any easier. “Indeed we do assume that there will be some additional litigation charges in the second half of the year,” said CFO Marcus Schenck. “Quantifying that, as we’ve always highlighted, is very tricky. We think they could potentially be material.”