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| Deutsche Bank slashes profits to meet sub-prime mortgage legal action costs | |
| (35 minutes later) | |
| Deutsche Bank has been forced to make a steep cut to 2012 profits it announced in January, to meet the spiralling cost of legal action linked to US mortgages. | Deutsche Bank has been forced to make a steep cut to 2012 profits it announced in January, to meet the spiralling cost of legal action linked to US mortgages. |
| Germany's biggest bank said it was now setting aside €2.4bn (£2.05 bn) to cover "new developments … concerning US mortgage-based litigation". | Germany's biggest bank said it was now setting aside €2.4bn (£2.05 bn) to cover "new developments … concerning US mortgage-based litigation". |
| As a result, the bank's profits for 2012 will be €600m lower than it previously reported. The report, on 31 January, already showed the worst quarterly loss in four years. | As a result, the bank's profits for 2012 will be €600m lower than it previously reported. The report, on 31 January, already showed the worst quarterly loss in four years. |
| Deutsche Bank declined to say in detail why it had increased the money set aside for litigation. Deutsche and several other lenders face a string of legal cases and investigations related to their role in selling bonds backed by US sub-prime mortgages. | |
| The bank is also facing investigations from financial regulators in several countries over its role in the Libor rate-rigging scandal. Investigators in Europe, the US and Japan are examining more than a dozen big banks over the manipulation of Libor, the London interbank offered rate, which is used as a benchmark to set interest rates and financial contracts worth $350tn around the world. | |
| On Tuesday, Elke König, the head of the German markets regulator, BaFin, told Reuters her agency's initial findings on Deutsche Bank's role in Libor would be passed to Germany's finance ministry by the end of March. BaFin is conducting a "special" probe, the most serious it can undertake, into Deutsche Bank's involvement in the scandal. | |
| A spokesman for Deutsche Bank declined to give further details on the litigation it is expecting from the US. Last year, Deutsche Bank admitted its part in the Libor scandal, saying a "limited number" of staff had been involved, but it insisted that no member of its board had acted inappropriately. | A spokesman for Deutsche Bank declined to give further details on the litigation it is expecting from the US. Last year, Deutsche Bank admitted its part in the Libor scandal, saying a "limited number" of staff had been involved, but it insisted that no member of its board had acted inappropriately. |
| The profit downgrade means the capital reserves the bank is required to hold under international rules will fall. Tier-one reserves, a key measure of a bank's financial strength, have been cut to 11.4% from 11.6%. | |
| Deutsche Bank has promised, however, to pay out dividends at 75 euro cents a share. | Deutsche Bank has promised, however, to pay out dividends at 75 euro cents a share. |
| The bank's announcement follows a decision by the US state mortgage company Freddie Mac to sue more than a dozen banks, including Deutsche Bank, for "substantial losses" it suffered as a result of Libor rigging. | The bank's announcement follows a decision by the US state mortgage company Freddie Mac to sue more than a dozen banks, including Deutsche Bank, for "substantial losses" it suffered as a result of Libor rigging. |
| Barclays, Royal Bank of Scotland, UBS and JP Morgan, as well as the industry body the British Bankers' Association, are among the parties Freddie Mac is taking to court, accusing them of colluding to make Libor rates artificially low. | Barclays, Royal Bank of Scotland, UBS and JP Morgan, as well as the industry body the British Bankers' Association, are among the parties Freddie Mac is taking to court, accusing them of colluding to make Libor rates artificially low. |
| In November last year, a US judge quashed an attempt by Deutsche Bank and Goldman Sachs to dismiss legal actions accusing them of misleading Freddie Mac and its sister company, Fannie Mae, into buying billions of dollars of risky mortgage debt. | In November last year, a US judge quashed an attempt by Deutsche Bank and Goldman Sachs to dismiss legal actions accusing them of misleading Freddie Mac and its sister company, Fannie Mae, into buying billions of dollars of risky mortgage debt. |
| The markets shrugged off Deutsche Bank's profits cut, as the bank's share price climbed 1.5%, to €32.70, by Wednesday lunchtime, although some analysts were advising investors to dump the stock. | The markets shrugged off Deutsche Bank's profits cut, as the bank's share price climbed 1.5%, to €32.70, by Wednesday lunchtime, although some analysts were advising investors to dump the stock. |
| "Deutsche Bank has had to be very careful about litigation, given that they're really in the firing line from investors and regulators on this," Christian Hamann, an analyst at Hamburger Sparkasse, told Bloomberg. | "Deutsche Bank has had to be very careful about litigation, given that they're really in the firing line from investors and regulators on this," Christian Hamann, an analyst at Hamburger Sparkasse, told Bloomberg. |
| Regulators have already imposed a string of fines worth £1.7bn on banks for manipulating Libor rates, including £390m on Royal Bank of Scotland and £290m on Barclays. | Regulators have already imposed a string of fines worth £1.7bn on banks for manipulating Libor rates, including £390m on Royal Bank of Scotland and £290m on Barclays. |