Deutsche Bank hopes to resolve largest legal case shortly

Deutsche Bank, the German lender that has paid more than $9 billion in fines and settlements since the financial crisis, expects to resolve the largest of its legal cases in coming months, co-chief executive officer John Cryan said.

“We can never promise it, but hopefully they’ll be behind us” by mid-year or the third-quarter, Mr Cryan, 55, said at a conference in Frankfurt on Wednesday.

“2016 should be the year when we finish the process of tidying up the bank and be 100 perc ent focused on what’s most important, which is our staff engaging with our customers.”

Mr Cryan, who took over from co-CEO Anshu Jain in July, is mopping up litigation and investigations stretching across the globe, from probes into its US. mortgage-backed securities business to whether its traders colluded to manipulate currency rates.

US and UK authorities are also investigating suspected money-laundering at the Russian unit, people with knowledge of the matter have said.

Legal bills have contributed to investor concerns that Deutsche Bank may struggle to pay coupons on its contingent convertible bonds, known as CoCos.

The bank’s shares dropped as much as 12 per cent on February 8th, and are down 26 per cent this year, while the cost to insure against a default on its subordinated debt has more than doubled.

Seeking to restore confidence, Deutsche Bank on February 9th published a letter to staff in which Mr Cryan describes the company as “rock solid” and signaled that rising legal provisions are already accounted for.

The bank has €5.5 billion euros set aside for future penalties, according to its filings. It also offered to buy back about $5.4 billion of senior bonds to help reverse the selloff.

“We weren’t forceful enough to say we absolutely will make those dividend payments,” Mr Cryan said on Wednesday of the bank’s communication earlier this year. “That set off some nervousness.”

Deutsche Bank is “incredibly liquid” with an “absolutely solid” balance sheet, he added.

A key part of the bank's plan to raise capital ratios is the sale of Deutsche Postbank, a German consumer lender. The decline in shares this year means Deutsche Bank will probably wait to sell the unit, Mr Cryan said.

“Our commitment is the same,” he said. “It is today for sale, but why would we sell it at what we think are very low points in the market when, with a little patience, we can, we hope, potentially obtain a better price?”

Deutsche Bank has already paid fines for alleged misdeeds including violating US sanctions and rigging interest-rate benchmarks. Mr Cryan pledged last month to resolve the bank’s legal battles as part of an overhaul plan.

The bank last week said Germany’s financial regulator, Bafin, completed probes into the lender’s conduct in cases including interest rate manipulation, Banca Monte dei Paschi di Siena SpA and the trading of precious metals.

Bafin cited changes already implemented and further measures to be taken by Deutsche Bank as reasons to end the special audits. Last year, US and UK regulators closed their probe of rate manipulation at Deutsche Bank with a record $2.5 billion settlement.

While regulators' desire to resolve past misconduct by banks is understandable, the framework isn't ideal, according to Sergio Ermotti, the CEO of UBS Group , which paid the biggest rate-rigging fine after Deutsche Bank.

“The coordination between authorities can really be improved and the arbitrary nature with which sums are determined is problematic,” Mr Ermotti said in a speech at the same event. He didn’t mention specific cases.

“Working through this definitely weighs on profitability, binds resources and limits the ability to look to the future.”

- Bloomberg