Deutsche buybacks at risk amid $1.4B legal action fund

investmentnews.com:

As the working week drew to a close in Frankfurt, Deutsche Bank AG’s Christian Sewing was on a roll. Upbeat first-quarter earnings had sent the lender’s shares to the highest level since 2017, bolstering a perception that the firm had finally shaken off its scandal-prone past.

The good vibes didn’t last long. A day after investors had been told to expect higher payouts on Thursday, Deutsche Bank made the announcement that it’s putting aside as much as €1.3 billion ($1.4 billion) in legal provisions. That was the result of a surprise court hearing which could favor former shareholders of Postbank AG, a competitor it took over 14 years ago.

The German lender’s shares plunged as much as 5.5% on Monday as analysts warned that the lender may be forced to walk back its Thursday promise. Morgan Stanley said the bank could delay a second buyback this year; KBW analysts said it could be scrapped altogether.

The latest development is a stinging setback for a CEO who’s widely credited with pulling Deutsche Bank out of a deep crisis when he took over in 2018. Before Monday’s open, shares had been up by about a third this year, making the lender one of the best performers among major European banks, as executives look to return money to investors after a decade of almost no dividends.

But the Postbank provisions now cast doubt over Sewing’s ability to carry out a second buyback this year. Stepping up investor payouts is a key element of his attempt to lift the lender’s share price.

In a release on Sunday, Deutsche Bank sought to explain why it hadn’t provided more clarity on the Postbank case during the Thursday earnings call, saying that it was caught completely off guard by the turn of events on Friday.

The Higher Regional Court of