Germany's top appeals court has found Deutsche Bank liable for damages on high-risk interest rate swaps it sold, a landmark decision that could set off a wave of other claims.
German paper company Ille Papier Service sought €540,000 (£471,000) damages, alleging it had not been adequately informed about the potential risks stemming from complex financial products sold by Deutsche Bank.
The ruling by the Bundesgerichtshof, Germany's final appeals court, is being closely watched by a host of European cities and municipalities that are also seeking damages from a raft of banks including JP Morgan and Commerzbank over the way they marketed similar sophisticated swap deals that ultimately unravelled.
The court held that Deutsche Bank had consciously tailored the risk profile of the product "to the detriment of the investor".
"This could set off a wave of other cases," said Jochen Weck, the lawyer representing Ille said, adding that banks could face billions in damages.
Presiding judge Ulrich Wiechers said the products sold by Deutsche Bank were extremely complex and did not amount to a mere speculative product, given the downside was unlimited.
Wiechers said the risky nature of the products, known as spread ladder swaps, could result in clients being "ruined" and, given their complex nature, the onus was on the bank to explain the risks.
"Just because I can read a poem does not mean i have understood it," the judge said in his ruling.
Deutsche Bank said it needed to review the judgment before being able to tell "to what extent this affects other financial transactions".
City A.M. Reporter