Deutsche Bank cuts reported profit to cover legal costs

Move linked to US mortgage lawsuits and other regulatory probes

Deutsche Bank said it would lower its 2012 pretax profit after it was hit by new charges related to mortgage-related lawsuits. Photograph: Kai Pfaffenbach/Reuters.

Deutsche Bank AG, continental Europe's biggest bank, cut its reported profit for 2012 after setting aside additional money to cover legal costs linked to US mortgage lawsuits and other regulatory inquiries.

The company increased the reserves by 33 per cent to €2.4 billion, lowering 2012 profit after tax by about €400 million to €291 million, the Frankfurt- based bank said in a statement today.

The firm reiterated its dividend and capital targets. Christian Streckert, a spokesman, declined to give further details on what prompted the decision.

The world's biggest banks are facing a series of regulatory probes and lawsuits linked to the alleged manipulation of benchmark interest rates as well as the mis-selling of products such as interest-rate derivatives.

Deutsche Bank said in October it's a defendant in "numerous" civil suits as an issuer or underwriter in residential mortgage-backed securities.

“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 who is advising clients to sell the share, said by telephone from Hamburg, Germany.

“They were probably too optimistic when they presented the preliminary numbers, but one can see from the share price that the market isn't concerned as the targets were confirmed."

Deutsche Bank climbed 1.2 per cent to €32.38 at 11.12 am in Frankfurt, partly reversing three days of losses and valuing the firm at €30.1 billion.

The Stoxx 600 Banks Index rose 0.7 per cent as European policy makers weighed options for keeping Cyprus in the euro area.

The company also said it reduced contingent liabilities for "significant" legal and regulatory matters by about €500 million to €1.5 billion as some of them related to claims that were previously disclosed.

European investment banks probably face a total of $11 billion in US mortgage-related litigation costs, analysts at Credit Suisse Group AG including Amit Goel said in an e-mailed report from London today.

UBS AG, Switzerland's biggest bank, faces the largest sum of $3.5 billion and Deutsche Bank $2.1 billion, they said.

The larger provisions reduced Deutsche Bank's Tier 1 capital ratio, a measure of financial strength under full Basel III rules, to 7.8 per cent at the end of 2012 from the 8 per cent it had published in January.

The firm kept an 8.5 percent target for the end of March and still plans to pay a dividend of 75 cents a share for 2012, according to the statement.

Bloomberg