Frankfurt-based Deutsche Bank AG (DB - Free Report) now has a reason to rejoice. The bank has emerged victorious in a legal conflict with Sebastian Holdings Inc. The latter is the investment fund run by Norwegian billionaire, Alexander Vik.
The conflict between Vik and Deutsche Bank began when the former incurred huge losses of about $8 billion during the financial crisis in 2008. Notably, Deutsche Bank acting as a broker asked Sebastian Holdings for extra cash in foreign exchange margin calls. A margin call is a broker’s demand that an investor make cash deposits to cover potential losses on trades.
However, Sebastian Holdings made considerable losses on foreign exchange trading and options called Target Profit Forwards (TPFs). Vik claimed that Deutsche Bank’s negligence and persistent errors relating to trading led to such losses. Therefore, Vik filed a lawsuit against Deutsche Bank in a U.K. High Court. On the other side, Deutsche Bank argued risks related to the trading conducted were known to Vik prior to these transactions.
Therefore, the U.K. High Court judge ruled that Deutsche Bank did not breach the contract with Sebastian Holdings. Further, the judge ordered the offshore fund to pay the bank a compensation of $236 million for unpaid broker services from 2008.
The favorable ruling is a relief for Deutsche Bank at a time when it is burdened with other legal and regulatory woes. The banking major’s third-quarter profit has declined substantially year over year due to litigation related expenses. Notably, the bank’s litigation reserves increased to €4.1 billion ($5.4 billion), including €1.2 billion ($1.6 billion) of additional provisions taken in the said quarter.
Deutsche Bank currently carries a Zacks Rank #1 (Strong Buy). Other foreign banks that can be considered include DBS Group Holdings Limited (DBSDY - Free Report) , Australia & New Zealand Banking Group Limited (ANZBY - Free Report) and Westpac Banking Corporation (WBK - Free Report) , all of which has the same Zacks Rank as Deutsche Bank.