Litigation Risks: Deutsche Bank Faces a Series of Damaging Lawsuits
The transition of power at Germany's largest bank is being overshadowed by the fallout from dubious deals in the US made at a time when incoming co-CEO Anshu Jain was head of investment banking. The bank faces a number of lawsuits, and the compensation claims are so large that regulators have asked Deutsche Bank to quantify them.
Financial regulators have asked Deutsche Bank to disclose the total risk it faces from a number of lawsuits brought by investors in its products who lost money in the 2008 financial crisis, SPIEGEL has learned.
The lawsuits are overshadowing the transition of power at Deutsche Bank from outgoing CEO Josef Ackermann to the two new co-chief executives, Indian-born Anshu Jain, the head of the investment banking division, and Jürgen Fitschen, the head of Germany operations, in the coming weeks.
The litigation includes a $1 billion claim from the US government which has filed a lawsuit alleging that Deutsche Bank and its subsidiary Mortgage IT wrongfully obtained state credit guarantees. In addition, the Federal Housing Finance Agency is suing the Frankfurt-based bank, as is the Teachers Insurance and Annuity Association.
A further lawsuit has been brought by German lender IKB, which was rescued by German state-owned development bank KfW with a capital injection of 8 billion in 2007.
Accusations of Fraud
IKB is demanding $439 million in compensation from Deutsche Bank in the US in connection with real estate deals in the form of so-called Collaterized Debt Obligations (CDOs), SPIEGEL has learned. In the years leading up to the 2008 financial crisis, Deutsche Bank created financial products based on US mortgages that rapidly lost value and plunged many investors into financial trouble.
These investors included IKB. Investment funds set up by IKB under the name of Loreley Financing to purchase the securities launched a lawsuit in the US in October accusing Deutsche Bank of fraud.
If the lawsuit succeeds, KfW would get most of the money. KfW said in a statement: "We are very interested in measures that can lead to a reduction of the losses resulting from this."
Meanwhile, the US Securities and Exchange Commission is also investigating Deutsche Bank, SPIEGEL reports. According to financial regulatory sources, the bank launched one CDO transaction called "START" in which it allegedly allowed the hedge fund of US speculator John Paulson to choose junk mortgage securities against which he could speculate -- without the other investors knowing about it.
Goldman Sachs settled a suit with the SEC in a similar case for $550 million, SPIEGEL reported.
© SPIEGEL ONLINE 2012
All Rights Reserved
Reproduction only allowed with the permission of SPIEGELnet GmbH
Click on the links below for more information about DER SPIEGEL's history, how to subscribe or purchase the latest issue of the German-language edition in print or digital form or how to obtain rights to reprint SPIEGEL articles.
- Frequently Asked Questions: Everything You Need to Know about DER SPIEGEL
- Six Decades of Quality Journalism: The History of DER SPIEGEL
- A New Home in HafenCity: SPIEGEL's New Hamburg HQ
- Reprints: How To License SPIEGEL Articles