German shareholder body calls for special audit at Deutsche Bank amid wave of litigation

Shareholder association DSW makes case as fines stack up

Shareholders in Deutsche Bank will, at its annual general meeting (AGM) next month, vote on a proposal calling for a special audit to determine whether the bank is financially prepared to deal with litigation stemming from events like the Libor scandal and whether the bank’s governance has been strengthened enough to prevent such events from being repeated.

It comes as the bank has been fined a record $2.5bn for rigging Libor and ordered to dismiss seven staff.

The proposal comes from German shareholder association DSW, which says it is backed by Deutsche investors with just under 1m voting shares. The Dusseldorf-based organisation needed the equivalent of 200,000 voting shares to get the proposal on the agenda for Deutsche’s AGM on May 21.

The DSW says a special audit for the sake of Deutsche’s shareholders has become necessary due to the wave of litigation that the bank has been hit with in the past few years. It counts 4,000 legal complaints that have been filed against the bank.

Just last month a Munich court green lighted a lawsuit which alleges that Co-CEO Jürgen Fitschen and four other former Deutsche executives misled judges in a related suit involving the family of Leo Kirch, the former German media mogul. To settle the latter complaint, which dates back to 2002, when then-Deutsche CEO Rolf Breuer claimed that Kirch was bankrupt, the bank was fined €925m.

Deutsche says that it has set aside €3.2bn in reserve to deal with the Libor litigation.

“It’s like every day there is a new lawsuit against Deutsche Bank,” said Jürgen Kurz, a spokesman for the DSW.“Our proposal is not about ascribing blame. We simply want transparency about whether the bank’s reserves are enough to deal with all this litigation and what it is doing to prevent all this from happening again.”

Kurz added: “Our proposal is also not a criticism of the supervisory board, which we believe is doing a good job in trying to change the culture at the bank. It’s about finding out how the legal risks are being handled, for that issue has been a black box.”

The DSW is proposing that BDO, the accounting and business consultancy firm, carry out the audit, as it currently has no business ties to the bank.

BDO would then report its findings to shareholders just before Deutsche’s AGM in 2016. As for Deutsche, a spokesman confirmed that the DSW proposal would be voted on at the AGM, adding that the bank would study the proposal before commenting on it.

The DSW, which represents both private and institutional investors in the bank, also said it was confident that support for its proposal – currently a fraction of the voting shares – would grow in the run-up to Deutsche’s AGM.

However, one other shareholder bloc that will not be voting for DSW’s proposal is the German Association of Institutional Shareholders (VIP).

According to VIP CEO Hans-Martin Buhlmann, the timing of DSW’s proposal is not ideal. “Deutsche is in the midst of deciding its future, that is whether it will continue to be a universal bank, or split off its retail operations and focus on investment banking,” he told Responsible Investor. “Doing an expensive audit would already complicate an already complicated situation.”