Deutsche Bank Clears Up One Fine Mess

Certainty and closure are more important than cost when it comes to bank litigation these days.

That seems the reason for Deutsche Bank shares rising on news that it will pay a bigger fine than any bank so far for its role in the alleged manipulation of interbank lending rates—or Libor.

The German lender is likely to pay more than $1.5 billion to settle with multiple U.S. authorities, more than double what it already paid European authorities for the same infractions. More than $3.5 billion has been handed over by all banks in this affair so far.

ENLARGE

Investors have been struggling to work out how the banking business is changing and what kinds of returns they can expect from what kinds of business. That has proved almost impossible in an ever tightening regulatory ratchet and through cyclical lows in many business lines. The many pending settlements for past misdeeds have barely come into these calculations because they are too hard to predict.

Barclays of the U.K., the first to settle a Libor case, paid just $450 million in 2012. Last year, BNP Paribas paid a whopping $9 billion over a sanctions-busting case amid a series of similar, but vastly smaller settlements by other banks.

For Deutsche Bank investors, simply having a number is a relief, even if it is a big figure. Analysts at Credit Suisse, one of very few teams to try to forecast individual settlements, predicted less than $500 million.

But Libor is just one of the issues Deutsche has left to settle. It has total provisions for these of €3.2 billion ($3.4 billion) and has warned of future liabilities worth another €1.9 billion. Analyst forecasts for all the settlements Deutsche faces range from about €4 billion at Berenberg to about €8 billion at Citigroup and Credit Suisse.

Deutsche Bank has much work to do preparing the strategic overhaul due to be unveiled in coming weeks. Whatever improved returns it targets from this still won’t make it to investors until all litigation issues are behind it. A big Libor penalty is, first and foremost, just another barrier cleared away.