If anyone still doubts the mounting legal burdens now falling on the world’s largest finance houses Deutsche Bank has this week dispelled such thoughts after announcing a fresh €1.2bn provision to cover its legal costs.
The German banking giant today (29 October) reported a 98% fall in quarterly profits after setting aside additional funds to cover its liabilities, reflecting the mounting regulatory burden facing the financial institution. The bank’s group income before taxes dropped for the third quarter to €18m, against last year’s figure of €747m for the same period in 2012.
The bank’s litigation reserves now stand at €4.1bn, while general and administrative expenses increased by €872m due to higher litigation related expenses. Deutsche regularly instructs the entire Magic Circle as well as Latham & Watkins.
Co-chairmen of Deutsche’s management board, Jürgen Fitschen and Anshu Jain, said: ‘In the third quarter we met several challenges. We took substantial litigation charges and saw reduced profits in investment banking, leading to a lower quarterly result.’
The news follows JP Morgan this month announcing a sharp fall in its profits for the third quarter after allocating $9.2bn to cover legal costs. In 2012, Deutsche Bank was alleged to have involvement in manipulation of Libor, the benchmark for inter-bank interest rates, but it has yet to reach a settlement with regulators.
Separately, Dutch bank Rabobank has agreed to pay the US, UK and Dutch regulators €774m in fines in settlement of allegations regarding Libor manipulation by some of the bank’s staff. Its chairman, Piet Moerland, also announced his resignation shortly after the agreement. He said: ‘The public has to be able to trust that Rabobank employees operate with our core values in mind. That is why I have today decided that, as a matter of principle, it is appropriate for me to resign as chairman of the executive board with immediate effect.’ Advisers to Rabobank include Linklaters, Allen & Overy and Herbert Smith Freehills.
Major financial institutions have been forced to spend huge sums in recent years on dealing with regulatory, compliance and litigation cost in the wake of the banking crisis, with other institutions targeted including HSBC, Standard Chartered and Barclays.
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