Deutsche Bank has increased its litigation provisions from €5.5bn to €5.9bn for the third quarter of this year, while the German lender recorded an unexpected profit, beating analyst expectations.
For the three months to the end of September, Deutsche made a net income of €278m and a pre-tax profit of €619m, despite reports in early October that its shares dropped after chief executive John Cryan failed to reach a deal with the US Department of Justice to lower a $14bn fine. The fine relates to allegations of mis-selling mortgage backed securities before the financial crisis.
The net profit figure constitutes a major shift on the €6bn loss recorded by the bank during the same period last year.
The results follow research published by Thomson Reuters in late September, which showed an intense cost drive faced by major clients across all industries. The figures show that FTSE 100 companies have set aside £31.3bn in the last year for legal provisions, a rise of 22% from £26.5bn the year before. The banking sector in particular accounts for 56% of the total provision for legal liabilities among FTSE 100 companies, up from 54% in 2014.
The sector’s anticipation of further hikes in disputes and fines contributes towards much of the sharp rise, with ongoing hurdles faced by UK-listed banks including claims in relation to Libor and Forex manipulation, ponzi schemes, manipulation of energy markets and of precious metal prices and PPI mis-selling.
BAE Systems general counsel Philip Bramwell said: ‘The challenges with banks relate to the environment they operate in – their checks and balances are externally applied. They face massive degrees of regulation and house huge legal functions that spend their time ensuring that external regulation is impeccably complied with.
‘Don’t forget they’re operating in a manmade system – the global financial economy susceptible to enormous shocks. They are not masters of their own destiny.’
Last year Deutsche announced plans to cut 15,000 jobs and businesses employing around 20,000 staff as part of a major restructure. Separately, its legal team has seen some key departures too, including global head of strategy for legal Emma Slatter, who left the bank after 20 years.