Deutsche Bank AG DB will receive €3.2 million ($3.6 million) from its former Chief Executive Officer (“CEO”) Rolf Breuer, whose 2002 interview gave rise to a corporate dispute that dragged on for more than a decade. The legal tussle cost the company €928 million.
The Background Story
In 2002, while participating in the World Economic Forum, Breuer appeared to question the creditworthiness of Kirch Group in a televised interview. During that time, Kirch Group was a client of Deutsche Bank.
Later that year, Kirch Group declared bankruptcy due to staggering debts related to the costly film rights deals and a misjudged foray into pay-television.
Even though information about the Kirch Group’s troubles had been reported in the media before Breuer’s interview, media mogul Leo Kirch (who passed away in 2011) alleged that Deutsche infringed confidentiality rules under German regulations. Additionally, the media group charged the bank for trying to tarnish its reputation and alleged that the CEO’s comments led other creditors to withdraw funding.
Kirch Group also claimed that the statement made by Breuer was part of a conspiracy to force it into bankruptcy, so that Deutsche Bank could gain significantly by helping it to restructure.
Though Deutsche Bank always denied the allegations, it resolved the 12-year long legal battle with heirs of Kirch in 2014.
Latest Development
In documents released on Thursday, Deutsche Bank revealed the details of the proposed settlement agreement reached with Breuer on Mar 10–11. Also, the company will receive a net sum of €90.1 million from insurance contracts covering Breuer under the terms of a settlement. However, the same is subject to investor approval at the company’s annual shareholder meeting on May 19.
However, Breuer, who served as CEO from 1997 to 2002, agreed to pay “without precedent or acknowledgment of a legal duty due to or in connection with the Bloomberg interview.” Though Breuer rejected the company’s claims, Deutsche Bank will drop its claims against him, to avoid the costs related to legal actions and reputational risks, in return for the settlement.
Our Take
Co-CEO John Cryan is expediting efforts to revamp the bank, which continues to struggle with numerous lawsuits and regulatory proceedings. Notably, marking the company’s first full-year loss since 2008, Deutsche Bank reported net loss of €6.8 billion in 2015, reflecting the impact of several one-time items including huge litigation charges.
However, Cryan’s efforts for simplifying the bank’s business model, reducing costs and pulling back unprofitable businesses to bring a turnaround along with the Strategy 2020 initiative is expected to help Deutsche Bank improve its operating efficiency.
Deutsche Bank currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked foreign banks include Banco Bradesco S.A. BBD, BBVA Banco Francés S.A. BFR and Canadian Imperial Bank of Commerce CM. All these stocks hold a Zacks Rank #2 (Buy).
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