Spiegel ONLINE International: Deutsche Bank is reeling from an adverse judgment against it by Germany‘s highest civil court which ruled that the bank had failed to caution its clients of the risks in an investment product it had sold to them shortly before the financial crisis.
Lawyers are currently studying the judgment which will be certain to have enormous consequences for the German banking market and could precipitate a wave of similar cases against all German banks which could attract compensation figures running into many millions.
The company, ILLE Paper Service, had taken Deutsche Bank to court saying that it had not been warned of the risks that a financial product it had bought from the bank in 2005 had entailed. The court held for the company and ordered the bank to pay EUR 541,074, plus interest, in compensation to the company. The bank’s lawyers are reported to be getting ready to defend similar cases against the bank.
The offending Deutsche Bank‘s product, a “spread ladder swap,” was a wager on the future development of interest rates. The judge said that bank failed in its legal duty to advise its clients that the risk to them was unlimited if they lost the wager. He said that the bank had deliberately made the product unfriendly to their clients so that it would profit from the sale. He went on to say that the bank’s clients should have the same “level of knowledge” as the bank itself when selling such products as only then could they be in a proper position to decide if they wanted to proceed with the wager. Currently, the bank is in similar disputes with municipalities and businesses in Germany which are claiming that they had not been properly advised of the investment risks in respect to products they had purchased from the bank.
Clients of other German banks have also begun similar compensation claims.
Deutsche Bank made a profit of EUR2.3 billion last year.
- Interest-rate swap ruling blow to banks (telegraph.co.uk)
- Deutsche Bank reportedly loses derivatives case (marketwatch.com)
- Deutsche Bank loses suit over investor losses (seattletimes.nwsource.com)
- Bad advice, wrong product (economist.com)
- German Court Rules Against Deutsche Bank in Swaps Case (dealbook.nytimes.com)
- Deutsche Bank Loses Case Over Swap Sales at German Top Court (businessweek.com)
- Deutsche Bank Tried To Win A Court Case By Arguing That Any High School Grad Could Calculate The Formula Of One Of Their Interest-Rate Swaps (DB, GS) (businessinsider.com)
- German Banks’ Debt Downgraded By Moody’s on Restructuring Act (businessweek.com)
- German Court to Rule on Deutsche Swaps Case (online.wsj.com)
- MarketWatch First Take: The new hidden risk of swaps (marketwatch.com)