Deutsche Bank AG (NYSE:DB) (ETR:DBK), which suffered heavy losses in the fourth quarter of 2012, announced today that it will cut its 2012 profits by $773 million (600 million euros). The company will set aside money for legal costs in mortgage-related lawsuits and other investigations.
As a result, Germany’s biggest bank has increased litigation provision from 1.8 billion euros to 2.4 billion euros and the company will have to restate the 2012 earnings announced on January 31.
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Previously, Deutsche Bank AG (NYSE:DB) (ETR:DBK) had reported a pre-tax profit of €1.384 billion on total revenue of €33.7 billion for 2012. Net income, based on January’s announcement, was €665 million.
After cutting €600 million in litigation charges, the bank’s pre-tax profit will come down to €784 million and net income to €291 million. In 2011, Deutsche Bank had reported a pre-tax profit of €5.4 billion and net profit of €4.3 billion.
However, the bank said its dividend payout for 2012 will remain unchanged at 75 cents, as in 2011. The German banking giant said it would target the tier-1 capital ratio of 8.5 percent, under Basel III rules. The tier-1 capital ratio is a safety buffer to weather a potential crisis.
The further reduction in earnings was followed by a board meeting. People familiar with the matter told Reuters that the higher litigation charges were due to the recent developments in mortgage-related lawsuits where other banks have been targeted. Deutsche Bank AG (NYSE:DB) (ETR:DBK) board thinks that they too have to pay complainants to settle disputes like other banks. American shares of Deutsche Bank AG (NYSE:DB) were up 1.01 percent to $42.10.
Last year, regulators filed lawsuits against Deutsche Bank, along with its peers, for misleading Fannie Mae and Freddie Mac to purchase risky mortgage debts worth billions of dollars. Deutsche Bank AG (NYSE:DB) (ETR:DBK) and Goldman Sachs Group, Inc. (NYSE:GS) asked the federal court to dismiss the lawsuits, but their bids were rejected by the judge.
In August 2012, Deutsche Bank AG (NYSE:DB) (ETR:DBK) also came under investigation for doing business for Sudan, Iran and other countries that are subject to U.S. sanctions.