DealBook: With Set-Aside, Deutsche Bank Cuts 2012 Profit

Michael Probst/Associated PressThe headquarters of Deutsche Bank in Frankfurt.

8:34 p.m. | Updated

FRANKFURT — Deutsche Bank on Wednesday revised its 2012 profit sharply downward as it set aside more money to cover the potential cost of legal proceedings.

Deutsche Bank, Germany’s largest lender, allocated an additional 600 million euros ($775 million) to cover its legal costs, a move that reduced its pretax profit for 2012 by the same amount. As a result, net profit for the year was 291 million euros ($376 million), about 400 million euros ($517 million) less than the bank reported on Jan. 31.

Like many big European institutions, Deutsche Bank faces a long list of legal woes.

It is dealing with numerous lawsuits related to its sales of mortgages and mortgage-related derivatives in the United States before the financial crisis. Ronald Weichert, a Deutsche Bank spokesman, cited those suits as the main reason for setting aside more money for legal expenses.

The bank, based in Frankfurt, has also been ensnared by the global investigation into rate manipulation. In November, Deutsche Bank said it had set aside money for potential penalties related to rate rigging. Now, it appears the bank is increasing the buffer, partially in response to a string of recent settlements involving other banks.

In February, Royal Bank of Scotland agreed to pay American and British regulators $612 million to settle claims that it manipulated the London interbank offered rate, or Libor. Last year, the Swiss bank UBS agreed to a $1.5 billion settlement and Barclays agreed to pay $450 million in that case. The banks are also expected to face civil suits from people who paid more interest than they should have because of Libor manipulation.

In total, Deutsche Bank has set aside 2.4 billion euros ($3.1 billion) to cover possible judgments and other litigation costs. The legal expenses, the bank said, would not affect the dividend of 75 euro cents (97 cents) a share, which was announced in January.

Deutsche Bank was one of the few large German banks to avoid taking a direct government bailout during the financial crisis and it is the only German bank able to compete with large American and British investment banks.

The bank’s co-chief executives, Anshu Jain and Jürgen Fitschen, have cut back on bonuses and taken other steps they say will discourage excessive risk-taking and unethical or illegal behavior in the future.

Article source: http://dealbook.nytimes.com/2013/03/20/deutsche-bank-cuts-2012-profit-and-sets-aside-more-cash-for-legal-woes/?partner=rss&emc=rss