According to Germany’s financial watchdog, BaFin, Deutsche Bank’s 2019 financial report did not comply with the international accounting standards as it omitted vital information concerning the bank’s historic losses in the US. The bank allegedly failed to reveal that €2.1 billion of deferred tax assets were tied to multiple years of losses at the bank’s US operations in 2019, which were failing at the time. The lender also didn’t provide an explanation in its annual record on its plans to produce future profits in the area – a mandatory disclosure under IFRS rules considering the bank hoped to balance the historic losses with upcoming profits in the region.
The decision exemplifies the more aggressive approach by German regulators towards enforcing accounting norms following the Wirecard scandal, one of the most significant post-war accounting frauds in Europe. Nonetheless, Deutsche Bank is not obliged to amend its 2019 results and there are no penalties or consequences for the accounting oversight.
Deutsche Bank’s shares experienced a 1.4 per cent decrease in morning trading, a fall that was over twice the size of the wider German stock market’s 0.6 per cent dip.
Since 2022, BaFin succeeded the Financial Reporting Enforcement Panel as Germany’s accounting regulator – a private sector entity with semi-official powers and limited resources. The Deutsche Bank decision is one of its most notable actions yet.
Thorsten Pötzsch, the head of accounting regulation at BaFin, warned companies in 2022 that those engaging in illegal accounting tricks are not welcome in the German capital market and noted that the chance of getting caught is now higher than ever.
Despite BaFin’s verdict, Deutsche Bank contended that it believes the 2019 financial statements and other related disclosures are in full accordance with IFRS requirements.
The bank has yet to answer a Financial Times inquiry on its plan to instigate legal action against the BaFin judgement. Meanwhile, Adler, a German property firm accused of several major issues in different yearly reports, is disputing the regulator’s findings.
The details of Deutsche discovering refer to a dual-page commentary concerning income tax, located in the bank’s 2019 fiscal report. The commentary announces the bank’s deferred tax assets of €5.4 billion for that year, which can be redeemed against forthcoming profits, a decrease from €6.7 billion in the previous year.
Towards the middle of 2019, Christian Sewing, the chief executive, launched an extensive overhaul which involved downsizing the bank’s investment banking endeavours. This included Deutsche separating from its equities trading division and writing off the deferred tax assets associated with this department.
However, since the bank held on to €2.1 billion of deferred tax assets linked to former losses in the U.S. on its financial statement, BaFin contended that the bank was legally bound to reveal this pinpoint detail, along with a rationale for its belief that the profitless businesses would become profitable in the future.
Deutsche Bank informed the FT that BaFin’s discovery “pertains to a remark in our 2019 financial declarations,” further noting that there was “no insinuation from BaFin that Deutsche Bank’s 2019 financial records are incorrect, and no need for any recount or further measures to be taken.”
KPMG, the bank’s previous auditor until it was superseded by EY in 2020, chose not to offer any comment. – The Financial Times Limited 2024 Copyright.