Deutsche Bank’s 2019 financial report did not meet international accounting standards because it lacked key details about the lender’s historic US losses, Germany’s financial watchdog BaFin said on Tuesday.
BaFin said the bank failed to disclose in 2019 that €2.1 billion of deferred tax assets were linked to multiyear losses at the US operations, which were unprofitable at the time. Deutsche also failed to explain in its annual report how it expected to generate future profits in the region – a legally required disclosure under IFRS rules as the bank was hoping to offset the historic losses against future profits in the region, the watchdog said.
The ruling reflects a much tougher stance by German regulators on enforcing accounting standards in the wake of the Wirecard fraud, one of Europe’s biggest postwar accounting scandals. However, Deutsche is not required to restate its 2019 results and does not face any fine or other sanction over the accounting failings.
Shares in Deutsche Bank fell 1.4 per cent in morning trading, more than twice as much as the wider German stock market, which was down 0.6 per cent.
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BaFin has been Germany’s accounting regulator since 2022 when it replaced the Financial Reporting Enforcement Panel, a private sector body with semi-official powers and limited resources. Its ruling on Deutsche is one of its most prominent actions so far.
BaFin’s head of accounting regulation, Thorsten Pötzsch, said in 2022 that “our message to companies is that firms who are using illegal accounting shenanigans have no place in the German capital market”, adding that “the risk of getting caught has never been as high as it is today”.
Deutsche took issue with BaFin’s finding, saying it was convinced the 2019 financial statements and other disclosures “comply fully with IFRS requirements”.
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The lender did not immediately respond to a Financial Times query on whether it will take legal steps against the BaFin ruling. German property company Adler, which has been accused of a series of more significant flaws in several annual reports, is challenging the regulator’s findings.
The Deutsche finding refers to a two-page note on income tax in the bank’s 2019 financial report. In the note, Deutsche discloses €5.4bn in deferred tax assets for the year that could be offset against future profits, down from €6.7 billion in 2018.
In mid-2019, chief executive Christian Sewing embarked on a radical restructuring that included shrinking the bank’s investment banking activities as Deutsche hived off its equities trading arm and wrote off deferred tax assets linked to that business.
However, as it kept €2.1 billion of deferred tax assets linked to previous losses in the US on its balance sheet, BaFin argued that the bank had been legally obliged to disclose this detail as well as an explanation of why it was convinced that the loss-making operations would return to a profit in future.
Deutsche Bank told the FT that BaFin’s finding “relates to a footnote in our 2019 financial statements”, adding that there was “no suggestion on BaFin’s part that there is any inaccuracy in Deutsche Bank’s 2019 accounts, and no restatement or other action is required”.
KPMG, which was replaced by EY as Deutsche’s auditor in 2020, declined to comment. - Copyright The Financial Times Limited 2024
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