Kirch Collapse

Seeking Redress, Deutsche Bank Turns Against Former CEO Breuer In Kirch Case

Warnstreik der Beschäftigten von Banken
A recent warning strike at a Deutsche Bank branch in Berlin in July 2014.
  • Why it matters

    Why it matters

    Deutsche Bank, already involved in a series of court cases, is looking for any way it can to recover some of its legal costs and improve its bottom line.

  • Facts

    Facts

    • Deutsche Bank and Kirch Group settled a long-running damages case earlier this year, agreeing to pay €925 million to the heirs of Leo Kirch.
    • Deutsche Bank reported a 29 per cent year-over-year drop in net income in the second quarter, partly related to litigation expenses.
    • Deutsche Bank has set aside €2.2 billion future litigation.
  • Audio

    Audio

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It all began with an interview. Former Deutsche Bank chief executive Rolf Breuer questioned in February 2002 whether Kirch Group could pay its bills. Three months later, Kirch Group, which owned sports rights and TV channels in Germany, filed for insolvency. One month later, media mogul and founder Leo Kirch filed a claim for damages against both Mr. Breuer and Deutsche Bank.

The story finally ended earlier this year with a €925 million ($1.24 billion) out-of-court settlement. Deutsche Bank paid the heirs of Mr. Kirch, who passed away in 2011. The Frankfurt-based bank has since been looking for ways to recover at least some of the money.

The Kirch saga is one of a series of court cases that have been impacting Deutsche Bank’s bottom line in recent years.

The Kirch saga is one of a series of court cases that have been impacting Deutsche Bank’s bottom line in recent years. The bank on Tuesday reported net income of €238 million in the second quarter, down 29 percent from the same quarter a year earlier. That included €470 million in litigation-related expenses for the quarter, while the bank also stocked up on reserves for future litigation costs by 22 percent to €2.2 billion.

The Kirch case

Deutsche Bank and Mr. Breuer long fought side-by-side in the case against Kirch Group. But with a settlement now behind them, Handelsblatt sources say Deutsche Bank is considering ways to claim at least some of the settlement back from its former Mr. Breuer, the man who started the whole process.

Deutsche Bank does not necessarily have to move against Mr. Breuer directly. Insiders say the bank is considering negotiating with insurance firms that provided Mr. Breuer with protection against such damages claims. Mr. Breuer took out such a policy, known as Directors and Officers Liability Insurance.

Breuer Kirch
Leo Kirch and Rolf Breuer. Source: DPA

 

 

Such a move would be rare. Normally, the bank would have to prove its claims against Mr. Breuer in court before the insurance companies would pay out. Going directly for the insurance money would require Mr. Breuer to wave his own legal rights and effectively sanction Deutsche Bank’s talks with his insurers.

Insiders at Deutsche Bank believe such a move is a real possibility. Mr. Breuer’s pool of insurers, led by Allianz and Zurich, could be open to a compromise in order to protect their own dealings with Deutsche Bank. Such a move would also allow the bank to recover more money – Mr. Breuer’s own personal fortune is estimated at only €10 million.

This would be a problematic move for Mr. Breuer himself, said Mark Wilhelm, an insurance specialist for the law firm Wilhelm, based in Düsseldorf. Should Mr. Breuer relinquish his claim without a court ruling setting damages, he would have to get hard assurances from his former employer that they would not go after him in court at a later date.

Deutsche Bank’s supervisory board will be considering its options and chance of success at a meeting in London on Tuesday, no doubt hoping this will be the last time they have to consult on the Kirch matter. Supervisory Board Chairman Paul Achleitner has allowed plenty of time for discussion – the meeting is scheduled to last from 11 a.m. to 8 p.m.

Deutsche Bank’s painful restructuring plans will also take center-stage at the supervisory board meeting. Handelsblatt reported earlier this week that the bank plans to expand an existing restructuring plan into 2018, hoping to squeeze costs further by improving efficiency.

The bank’s co-chief executives, Jürgen Fitschen and Anshu Jain, believe the bank still needs to cut costs in order to keep up with the higher margins of other global investment banks. Deutsche Bank’s cost-income ratio rose to 85 percent in the second quarter – for every €1 the bank made it spent 85 cent. That is about level with the same period last year but above the 77 percent ratio reported for the first quarter of this year. For 2013, the cost-income ratio of rivals Goldman Sachs was 63.2 percent and JP Morgan was 72.4 percent.

“These results reflect progress with Strategy 2015+, which we reinforced with two capital raises in the quarter. Nonetheless, our environment is complex,” Mr. Fitschen and Mr. Jain said in a statement on Tuesday, acknowledging there was more work to do. “We remain committed to working systematically through our strategic agenda and, with enhanced capital strength. We face these challenges with greater confidence.”

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