court costs

Deutsche: Case Closed But Battle Goes On

Sal Oppenheim entrance DPA action press Oliver Be
Sal. Oppenheim, Deutsche Bank's subsidiary that has foundered in recent years.
  • Why it matters

    Why it matters

    Legal problems and court cases have kept Germany’s biggest bank on the defensive.

  • Facts

    Facts

    • Deutsche Bank acquired Sal. Oppenheim in 2010.
    • Sal. Oppenheim is in the process of settling several cases in which it is accused of mismanaging its Oppenheim-Esch funds.
    • Deutsche Bank is struggling to keep its U.S. pension fund business after admitted criminal misconduct.
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  • Audio

    Audio

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Deutsche Bank has seen its legal costs skyrocket over the last year and faced a record fine for the Libor rate manipulation case. The has also had to set more money aside for other possible fines.

Germany’s largest bank, is struggling to hold on to its $8 billion business managing pensions in the United States following a penalty set by the U.S. Department of Labor. The bank faces a deadline this week in an early stage of an extended review process.

So one less case – against the bank’s subsidiary, Sal. Oppenheim – is cause for at least some relief.

Deichmann shoe company has finally reached an agreement with Sal. Oppenheim, a storied private bank bought by Deutsche Bank in 2010 after a long struggle dating back to 2012.

The Deichmanns had sued Sal. Oppenheim over numerous funds, called the Oppenheim-Esch funds, in which the family had invested and lost money.

Along with Sal. Oppenheim, the Deichmann family also sued public savings bank Sparkasse KölnBonn and the firm of real estate tycoon Josef Esch, with total demands adding up to €165 million, or about $185 million.

In response, Sal. Oppenheim counter-sued and demanded the Deichmanns pay back €60 million in loans.

Now the long-standing controversy has finally been settled, bringing to an end one of the biggest lawsuits in the Oppenheim-Esch affair.

The Oppenheim-Esch funds date back to a time when the private bank worked closely with real-estate manager Josef Esch. The bank set up nearly 70 funds promising high returns and significant tax advantages, and well-heeled customers of the bank were eager to invest.

At first, Mr. Esch concentrated on projects where rents were guaranteed by the government. In Cologne, for example, the Trade Fair Halls and Lanxess-Arena are in the hands of such funds.

Big problems emerged later, though, when many department stores of the Karstadt company were detached from the firm and bundled into funds. The company, later operating under the name Arcandor, ran into financial difficulties and could no longer pay the high rents.

Profit predictions for the funds vanished, and many investors realized that promises could not be met.

In courts, plaintiffs argued that Sal. Oppenheim had not sufficiently informed them of the risk. The bank and Mr. Esch were lining their own pockets all the while, they argued.

In addition to the Deichmanns, Sal. Oppenheim has now also reached an agreement with the Kreke family, which owns the Douglas perfume company. Both claimants confirmed to Wirtschaftswoche, the German business weekly, that the disputes were resolved.

Officials with Sal. Oppenheim declined comment.

Despite these two settlements, the affair isn’t over yet for Sal. Oppenheim. In addition to the Kreke and Deichmann families, investors Thomas Pachmann and Axel Pfeil also reached favorable agreements. Inside sources say both got back their investments of around €6 million.

But there are further cases that have not yet been resolved.

 

Deichmann Kreke Source DDP Picture alliance defodi
Mr. Deichmann and Mr. Kreke settled their cases with Sal. Oppenheim. Source: DDP, Picture alliance, Defodi

 

Holger Lampatz, founder of the Maxdata IT firm, is suing the bank for €180 million. His case will soon be heard in Cologne District Court, where judges have shown themselves to be plaintiff-friendly.

And there are bigger cases ahead for the Cologne court. The Quelle heir Madeleine Schickedanz, for instance, is suing the bank for €2 billion in damages. Her two holdings in Oppenheim-Esch funds total only a fraction of that amount, about €100 million.

While the cases around Sal. Oppenheim draw towards a close, its parent company is struggling to meet the requirements of the United States Department of Labor, showing it has adjusted its practices following the Libor rate manipulation case.

The Bloomberg business news agency reported that Germany’s biggest bank, in addition to UBS Group and Royal Bank of Scotland, had received bad news from the U.S. Department of Labor. In letters dated July, the department initially denied the banks requests to continue managing U.S. pension money.

The banks admitted earlier this year to manipulating foreign exchange or benchmark interest rates. Deutsche Bank agreed to a $2 billion penalty.

But also as a result, the banks were required to seek the Labor Department’s permission to maintain their “Qualified Professional Asset Manager” status.

The Labor Department said the banks so far had failed to demonstrate they could manage pension funds in their clients’ best interests, Bloomberg reported.

Deutsche Bank is actively engaging the Labor Department on the issues, according to a spokesperson.

For the bank’s new chief executive, John Cryan, appointed to clean up at Deutsche, it must seem the lengthy process has barely begun.

 

Volker Votsmeier is a reporter in Handelsblatt’s investigative team. To contact the author: votsmeier@handelsblatt.com 

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