Analyzing the Global Opt-In Deutsche Postbank Settlement: 5 Investor Takeaways

Late last month, the news reported a $200 million payday for a large investment management firm and other plaintiffs from settlements of their claims against Deutsche Bank AG in Germany over its 2008 acquisition of Deutsche Postbank.[1]

Here are five takeaways for investors from these resolutions.

You need to be in the game

As my wife reminds me when buying lottery tickets: you don’t win if you don’t play. The Postbank recoveries should prompt investors to implement a non-US recovery program if they don’t already have one. Each year, there’s a steady stream of securities class action settlements, particularly in Australia, and a couple of mega recoveries such as Postbank from suits in Europe, Japan, and/or the UK.

Over time, these recoveries can add millions to fund coffers and investors should ensure they have a comprehensive global class action program to capture them.

Deploy your internal resources wisely

For nearly all non-US recovery efforts, case organizers (funders and lawyers) will represent you on a no-win, no-fee basis, advancing all case costs at their own risk. However, participation requires some investment of your internal team time and resources to support claims.

Your required investment varies by country and case, and how much you leverage outside vendors like FRT. We recommend using minimum loss thresholds to appropriately scale efforts. These are estimated loss amounts for cases that must be exceeded to trigger joining decisions.

For Germany, we’ve historically suggested claimants have $2-$3M in estimated losses to consider joining. Given the likelihood of success, participation burdens, and extended times to conclusion (8 years for Postbank), this amount of losses should on average return enough in absolute dollars to justify your resource investment. This proved true for FRT clients here.

Consider settlement drivers

Prioritize ‘low lying fruit’ matters: those with resolution drivers. Cases settle due to increased threats of court judgments or because unrelated business needs force management to put suits behind them. The Postbank settlement appears to have resulted from both: a potential appeals court ruling favorable to plaintiffs and adverse shareholder response to the impact of a €1.3B reserve for this litigation taken last April on the company’s stock buyback program.[2]

Of course, these precipitating settlement drivers were not foreseeable years ago when the case started. However, the Postbank case involves a favorable type of claim. This is not a securities fraud case; plaintiffs challenged the sufficiency of consideration received in the Postbank acquisition. Your recovery program should favor such appraisal cases because they don’t require plaintiffs to prove issues specific to each beyond owning the relevant shares. Shareholders are forced to surrender shares, and their reasons for owning them aren’t relevant.

There are ongoing appraisal proceedings in Switzerland related to the UBS-Credit Suisse acquisition and we’ve seen successful past appraisal suits in Bermuda and the Cayman Islands.

Be patient

US investor suits resolve quickly compared to those in Europe. On average, US securities class actions conclude within four years. The Postbank recovery comes sixteen years after the acquisition and eight years after the start of proceedings. That’s likely about average for European litigation.

Why is Europe slow? Cases proceed by hearings – one or two each year. By contrast, in the US, federal court rules impose timelines on the parties’ progress and completion of milestones.

In the US, appeals are limited to legal issues, and after decades of securities litigation, there are few remaining novel issues. By contrast, in Germany, the Netherlands, and other European countries, securities litigation is newer, and appeals are de novo, meaning courts review both legal and factual questions. As a result, appeals are new ballgames. With fewer settled issues, there are more bases for appeals, which can extend proceedings for years.

Essentially, European securities litigation is a war of attrition: plaintiffs try to keep cases going for as long as possible and push for recovery, while defendants try to permanently kill them. The Postbank litigation followed this pattern, with several trips up and down the appeals ladder. Eventually everyone, including Deutsche shareholders, became exhausted and wanted to wrap things up.

A grain of salt

In some ways, the Postbank settlement is an anomaly. It bucks the trend of adverse procedural rulings we’ve seen recently from German courts that have hamstrung litigation against other companies including Bayer and Wirecard. There seems no end in sight for the VW ‘Dieselgate’ suits.

The Postbank settlement reinforces the need for shareholders to be judicious in their case selection across all countries, particularly where there is some level of ongoing time and effort required to sustain claims during these attrition wars. Smart case evaluation requires comprehensive and unbiased information for joining decisions and to accurately set outcome expectations.

Conclusion

Postbank reminds investors of the importance of non-US cases for their global recovery programs. While justice may be slow in coming for these investor suits, recovery amounts can be quite substantial when they do finally resolve. It can feel like finding money in an account you opened long ago and then forgot – a satisfying dividend for past efforts.

Our in-house Legal team has used a foundational template to assist our clients in developing a shareholder litigation governance policy tailored to their firm’s risk tolerance and corporate objectives. FRT is now making these insights available to prospective clients, who can download the template below!

[1] Eyk Henning, Swetha Gopinath, and Steven Arons, Elliott Gets €200 Million Payday From Deutsche Bank Settlement (Bloomberg, 8/22/2024).

[2] Deutsche Bank stock rises after progress made on Postbank settlements (MSN, 8/22/2024).