Deutsche Bank AG, Germany's biggest bank, lost a case over interest rate swaps in the first ruling by that country's highest court concerning sales of the products that have spurred lawsuits against lenders throughout Europe.
The bank must pay Ille Papier-Service GmbH 541,074 euros ($770,000) plus interest over the swap purchase, Federal Court of Justice Presiding Judge Ulrich Wiechers said on Tuesday in Karlsruhe, Germany. The bank did not adequately disclose the risks of the products, he said.
"As an adviser to its customer, the bank must guard the customers' interest alone," Wiechers said. "But as a seller of the swap, a loss to the customer works to the bank's advantage."
The ruling will influence dozens of disputes Deutsche Bank has with local German governments, community-owned utilities and companies that claim the lender sold swaps without adequately disclosing risks and fees for the products that were designed to lower interest payments. Cases over derivatives sales have spread throughout Europe with similar disputes in Italy, France and England.
Deutsche Bank lawyer Christian Duve said his client needs to analyze the written ruling. The "number of open disputes over these swaps is limited," he said. "The bank has taken adequate risk provisions for this."
Olaf Kayser, an analyst at Landesbank Baden-Wuerttemberg, said, "these cases could damage the bank's reputation."
Dario Loiacono, who represented Cassa di Risparmio di San Marino against Barclays PLC in a U.K. suit, said: "This judgment seems to confirm that bank must act in the interest of the client, irrespective of how sophisticated the client is. It defeats the premise of caveat emptor."