Deutsche Bank, Breuer Liable for Kirch Damages

Deutsche Bank suffered its second legal blow in two days yesterday when a court ruled the bank and former chief Rolf Breuer were liable for damages over remarks he made about media group Kirch's creditworthiness.

The Munich court ruled that Deutsche Bank, Germany's biggest bank, and Breuer had breached client confidentiality. The ruling establishes the principle of liability but not the extent of any compensation to be paid. Deutsche Bank said it planned to appeal.

"On first reading we are convinced that the judgment is legally flawed in several respects," Deutsche Bank lawyer Peter Heckel told Reuters. "We are still optimistic about the final outcome of this case."

On Monday, prosecutors charged Deutsche Chief Executive Josef Ackermann, who took over from Breuer last year, over his role in awarding huge payments to top Mannesmann managers during the firm's takeover by Vodafone in 2000.

Ackermann was a member of the Mannesmann supervisory board at the time. He has repeatedly denied allegations that he breached shareholders' trust by awarding excessive payments.

The Munich court said in a statement that Breuer and the bank must compensate media mogul Leo Kirch and his Taurus Holding company for any damages arising from an interview he gave in February 2002. Deutsche was a major Kirch creditor.

Shares in Germany's biggest bank extended earlier losses on the news to trade three percent down 2.7 percent at 41.1 euros, underperforming European peers on the DJ Stoxx European banks index, which was up 0.15 percent.

Fighting On Several Fronts

"Investors will ask whether they are becoming distracted by fighting on too many fronts when focus is all important at the moment," said an analyst who requested anonymity.

Deutsche, which has been shedding business units and selling industrial shareholdings in a bid to counter a stagnant German economy and the global downturn in investment banking, posted weaker than expected fourth quarter profit earlier this month.

Kirch initially sued Breuer and Deutsche Bank for 100 million euros ($107 million), claiming Breuer's comments played a part in the collapse of his 50-year-old empire.

"What one is reading and hearing is that the financial sector is not prepared to supply further funds or outside resources (to Kirch)," Breuer told Bloomberg TV last February, as creditors tightened the noose on the ailing company.

The collapse in April of KirchMedia - the core of Kirch's business empire - with liabilities of almost two billion euros was followed by the insolvency of its loss-making payTV sister company in May, marking the end of an era in German media.

Kirch bailed out Germany's EM.TV nearly two years ago when it took over most of EM.TV's stake in the Formula One championship for $1.5 billion - a deal many analysts say was overpriced and the last nail in Kirch's coffin.

Sources close to Kirch say the final damages claim could run into billions of euros. Analysts say Deutsche Bank is likely to face a much smaller bill, if any.

"The comfort for Deutsche Bank is that they can appeal to at least two higher courts and we would expect to see the ruling overturned," said one. "Even if the appeal goes in Kirch's favour, he is unlikely to see more than a very small fraction of the (two billion)."

The Munich court said in a statement that a separate case would have to be held to determine whether and to what extent damages had arisen.