Bank Litigation

Time to Learn Lessons

  • Why it matters

    Why it matters

    In response to a request from shareholder representatives, Deutsche Bank hired an auditing firm to conduct an independent assessment of how it handles its legal risks.

  • Facts


    • The auditors were critical of the software the bank uses to manage identified risks.
    • Deutsche Bank is in the process of introducing a system to replace this software.
    • The auditors also criticized the bank’s lack of a global guideline on the treatment of legal risks.
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A trader for Deutsche Bank on the floor of the New York Stock Exchange. Source: DPA / Andrew Gombert

Two years ago, shareholder representatives, concerned about the piecemeal way legal problems were coming to light, called for an independent assessment to scrutinize the way Deutsche Bank handles legal risk.

“At various shareholder meetings in the past, we have repeatedly had to listen to the bank tell us that it had its legal risks under control and that they had sufficient reserves to cover those risks,” said Klaus Nieding, vice-president of the German Association of Private Shareholders (DSW), which called for the audit. “And then there were repeated capital increases, and then new legal risks that always kept coming to light.”

Now, ahead of its annual general meeting on May 18, Deutsche Bank has published the independent audit, conducted by the firm BDO, that found fault with aspects of the bank’s risk control for ordinary litigation.

The auditors outlined two points of criticism. First, they found fault with the software the bank uses to manage identified risks, saying weaknesses in the control system “increase the operative risks.”

The second deficiency, according to the report, was that the bank previously lacked a globally applicable guideline, documented in writing, on how to address legal risks.


The bank has stressed that it issued a new, comprehensive guideline on legal risks even before the BDO audit was complete.

“This shows that the bank had an open flank before the special audit,” said Mr. Nieding. At the same time, he pointed out, the audit showed the bank is generally handling legal risk well.

Deutsche Bank says it is acting on the criticisms in the audit report. The bank is testing a replacement system to remedy the software problems, according to Mr. Nieding, and the bank has stressed that it issued a new, comprehensive guideline on legal risks even before the BDO audit was complete.

As unpleasant as the criticisms highlighted in the audit have been for Deutsche Bank, the auditors had no drastic complaints about its handling of major financial risks. This is reassuring for the bank and its shareholders, especially as cases involving major financial risk accounted for about 86 percent of reserves for litigation.

Last year, the bank increased its reserves for the settlement of other legal disputes to €7.6 billion ($8.1 billion).

Yasmin Osman covers the financial sector for Handelsblatt. To contact the author:

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