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Deutsche Bank warned late on Friday that up to a fifth of its expected pre-tax profit in 2024 might be wiped out as it braces for defeat in parts of a long-running shareholder lawsuit over its ill-fated 2010 takeover of domestic rival Postbank.

The profit warning comes a day after Deutsche Bank reported its highest quarterly profit in 11 years, sending its shares up more than 8 per cent to their highest level in seven years.

But on Friday the lender disclosed that it would book a provision of up to €1.3bn after a court in Cologne indicated that the bank was poised to lose elements of a complex lawsuit over what it paid other shareholders in German retail lender Postbank for the stock it did not already own.

Deutsche said it would now seek to cover this risk, but did not disclose a final figure to be set aside. It warned that “the full amount of all claims, including cumulative interest, is approximately €1.3bn”.

This compares with the €6.8bn in pre-tax profit that analysts expect in the lender’s full-year results and would knock 20 basis points from its common equity tier one — a key benchmark of balance sheet strength — pushing it down to 13.25 per cent.

The court’s assessment signals yet another Postbank-related hitch for Deutsche. In late 2023, it clashed with Germany’s financial watchdog, BaFin, over the botched integration of Postbank’s IT systems. That process resulted in many customers being locked out of their accounts, heavy disruption to internal workflows and a dramatic spike in client complaints to the regulator.

BaFin dispatched a special monitor to oversee Deutsche’s work on improving matters and publicly rebuked the lender. Deutsche said on Thursday that most of the issues had been resolved, adding that the financial hit to the bank from the disruption so far stood at more than €100mn.

Former Postbank shareholders have spent 14 years claiming that Deutsche Bank paid too low a price for their holdings. They argue that the bank had gained de facto control years before while it was in the process of buying out the remaining minority investors. It first took a stake in 2008 with an option to increase this later, which it did in three stages up to 2010

They maintain that Deutsche ignored an obligation under German law to make a mandatory takeover offer to the remaining shareholders at a time when Postbank’s shares were trading at €57.25, against the €25 Deutsche eventually paid.

The claims were originally struck down by courts in Cologne in 2011 and 2012, but these rulings were later nullified by Germany’s Federal Court of Justice. Deutsche Bank lost a subsequent trial in 2017 but lodged an appeal, resulting in an another series of lawsuits.

The lender is now expecting to lose the final round as the Cologne court “indicated that it may find elements of these claims valid in a later ruling”.

The bank said on Friday that it “continues to disagree strongly” with the plaintiffs’ view. It added that it had not yet fully analysed the legal arguments or the financial impact of the court’s opinion but that while second-quarter and full-year profits would take a hit, management “does not expect a significant impact on the bank’s strategic plans or financial targets”.

Most of Deutsche’s published financial goals — such as lowering its cost-income ratio to 62.5 per cent and lifting its return on tangible equity to more than 10 per cent — are targeted for 2025, while the one-off effect from the Postbank issue will be felt this year.

But the provision could have an impact on the lender’s October 2023 promise to increase dividends and share buybacks by 2025 by an additional €3bn on top of the €8bn it has already committed to returning.

American activist Mark Rudd, center, president of Students for a Democratic Society (SDS), addresses students at Columbia University on May 3, 1968.

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American activist Mark Rudd, center, president of Students for a Democratic Society (SDS), addresses students at Columbia University on May 3, 1968.

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A takeover of Columbia University’s South Lawn by pro-Palestinian students last week is drawing comparisons to 1968 — another time when police were called to clear protesting students from the campus.

There are parallels between the two high-profile events, most starkly the proliferation of similar protests around the country, as students call for an end to the war between Israel and Hamas in Gaza.

But there are also differences. Here’s a quick guide:

Several issues were at stake in 1968

For many Columbia students in 1968, their protest was motivated by anger over the Vietnam War — and changes to the military draft that were chipping away at students’ deferments, particularly in graduate schools.

The radical group Students for a Democratic Society (SDS) also opposed Columbia’s links to the Institute for Defense Analyses — a think tank researching and analyzing weapons and strategies to use in Vietnam. They also wanted the CIA and military services barred from on-campus recruiting.

But others, especially the Society of Afro-American Students (SAS), were also upset that Columbia University was moving ahead with plans to take over part of a public park in Harlem, to build a gym that critics said would give only limited and second-class access to the local community.

“They were building it in Morningside Park, one of the few green spaces in Harlem,” former Columbia student and current SUNY law professor Eleanor Stein told NPR’s Michel Martin. “And we felt that it couldn’t be business as usual, that the university itself was engaging in an indefensible takeover of Harlem land and an indefensible participation and complicity with the Vietnam War effort.”

White and Black students coordinated a protest against the gym — and then hundreds of students moved from there to take over office and classroom buildings, enforcing a strike against the school.

The current president cited a “clear and present danger”

Pro-Palestinian students set up tents to hold a demonstration on campus on the same day that Columbia University President Minouche Shafik testified in Congress about reports of antisemitism on Columbia’s campus — a session that school newspaper the Columbia Spectator followed with live coverage.

Her testimony followed months of debate and argument over free speech on campus. The school’s response to antisemitism is the subject of an investigation by the House Education Committee.

One day after the campus protesters took up their position on the South Lawn, Shafik asked police to remove them.

“I have determined that the encampment and related disruptions pose a clear and present danger to the substantial functioning of the University,” Shafik said last week, asking the New York Police Department to remove protesters one day day after.

“All University students participating in the encampment have been informed they are suspended. At this time, the participants in the encampment are not authorized to be on University property and are trespassing,” Shafik said.

Pro-Palestinian protesters gather at an encampment on the Columbia University campus in New York City on April 25, 2024.

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Pro-Palestinian protesters gather at an encampment on the Columbia University campus in New York City on April 25, 2024.

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“With great regret, we request the NYPD’s help to remove these individuals.”

When the police were called onto campus in 1968, officers were blamed for violently arresting hundreds of students, using nightsticks and horses in a chaotic scene.

In contrast police and city officials said last week that the removal of the demonstrators from Columbia’s campus was peaceful, and no injuries were reported.

But after the wave of arrests, many students returned to the campus, setting up tents once again.

The 1968 protest occupied 5 buildings and included a hostage

Reporters for Columbia’s college radio station WKCR (including longtime NPR host Robert Siegel), were present when Henry Coleman, acting dean of Columbia College, sought to confirm his status as he stood among a crowd of students in the lobby of Hamilton Hall.

“Am I to understand then, that I am not allowed to leave this building?” Coleman asked, in an archival recording.

“Let me ask,” a male student replies. He then yells, “Is he to understand that he’s not going to leave this building?”

“Yes!” the crowd roars in response.

Why did the university delay calling police in 1968?

Part of the reason seems to be race.

The morning after students occupied Hamilton Hall, Black students aligned with SAS asked white students led by the SDS to leave.

“SAS leaders later explained that the spontaneous, participatory, and less-defined politics of SDS-led white students interfered” with the Black students’ goals that centered on racial justice and equity, according to an online history exhibit assembled by the Columbia’s library system.

Conditions inside Hamilton Hall were calm and quiet compared to the “boisterous” atmosphere elsewhere, the exhibit states. But university leaders viewed the Black-held hall as a powder keg — fearing that if police were called in against the students there, Harlem’s Black community would mount a violent reaction.

“In fact, when the police entered barricaded Hamilton Hall in the early hours of April 30, the occupying students avoided struggles with the police, calmly marched out the main entrance of the building to the police vans waiting on College Walk,” according to the library’s online exhibit.

What is the legacy of the 1968 campus protest?

“Although the war in Vietnam continued for seven more years, the protesters were, in many ways, successful,” wrote historian Rosalind Rosenberg of Columbia-affiliated Barnard College. “They persuaded Columbia to put an end to classified war research, cancel construction of the Morningside Park gym, ask ROTC to leave, and stop military and CIA recruitment.”

But some divisions emerged among the students: Black protesters asked their white counterparts to leave a building due to their different approach and focus, for instance. And women who were part of both groups cited their disillusionment with being left out of positions of power, spurring their embrace of the feminist movement.

Microsoft and Google’s owner Alphabet have quashed investor scepticism around the vast sums spent on developing artificial intelligence, after being boosted by rampant corporate demand for their cloud computing services.

The combined market value of the two US tech giants rose by more than $250bn on Friday, a day after each reported double-digit revenue growth in their first-quarter results to comfortably beat analysts’ expectations. Shares in Amazon and Nvidia, two other beneficiaries of AI spending, also rose by around 3 and 6 per cent respectively.

This week’s earnings reports from Microsoft and Alphabet have soothed market anxiety about the huge jumps in spending on the infrastructure needed to power AI chatbots such as OpenAI’s ChatGPT and Google’s Gemini, as well as several other companies experimenting new AI models.

Meanwhile, advertising revenue at Google also rose, suggesting that AI-powered chatbots are yet to hit usage of the world’s dominant search engine. Jim Tierney, head of US growth at AllianceBernstein, said that Alphabet’s first-quarter results reported on Thursday “didn’t lay the questions [about AI] to rest. But there was so much good stuff elsewhere, it buys them more time”.

Analysts at Baird estimate that capital expenditures by Alphabet, Amazon, Microsoft and Meta this year will total about $188bn, almost 40 per cent more than in 2023. Electric-car maker Tesla said it had invested $1bn in AI in the first quarter and would accelerate spending on chips and automated driving.

The bullish outlook from members of the “Magnificent Seven” US tech bellwethers could reignite the AI-fuelled rally that accounted for most of the gains on US stock markets in 2023. This had faltered at the start of the year as pessimism spread about runaway tech spending and broader concerns about interest rates and conflict in the Middle East.

Alphabet shares jumped 10 per cent on Friday, a rise helped by the company paying the first dividend in its history and boosting its market capitalisation past the $2tn threshold. Microsoft, the world’s most valuable company and OpenAI’s biggest backer, rose almost 2 per cent to climb back above $3tn.

Those gains stand in contrast to Meta’s 11 per cent drop on Thursday after the Facebook parent said it would “invest aggressively” in new AI products such as chatbots, despite generating only limited returns from them so far. Meta’s finance chief Susan Li said capital expenditure would rise to $40bn this year and go even further in 2025, projections that overshadowed a 91 per cent increase in first-quarter net income.

But for those building cloud infrastructure, investors took even bolder AI spending plans in their stride. Google chief financial officer Ruth Porat said capital expenditure would jump 50 per cent or more to at least $48bn this year.

“After what seemed like a year-plus of coming from behind [on AI], we believe Google is beginning to go on the offensive,” said analysts at JPMorgan. 

Microsoft finance chief Amy Hood unveiled a 79 per cent year-on-year leap in quarterly capital expenditure to $14bn, before adding that even more funding for data centres was required because “AI demand is a bit higher than our available capacity”.

Such is the rapid growth in demand for AI services from start-ups such as OpenAI and Anthropic, as well as from large corporate customers, that many necessary components including chips and power supplies have become scarce.

“If you’re not engaging AI actively and aggressively you’re doing it wrong,” Nvidia chief Jensen Huang said at an event organised by payments company Stripe on Wednesday.

“Your company is not going to go out of business because of AI,” he said. “It’s going to go out of business because another company used AI. There’s no question about that.”

The first-quarter performance eases pressure on Alphabet chief Sundar Pichai, who has faced criticism for letting Google lose the initiative to Microsoft in consumer and enterprise AI products after the latter’s $13bn partnership with OpenAI.

Google had to pull image generation in its own flagship AI system, Gemini, following a furore over its inaccurate historical depiction of different ethnicities and genders.

“Google has faced near-constant critique around the inevitable AI-led disruption to search, a string of PR mis-steps that questioned whether Google was too far behind in AI or too ‘woke’ to make it,” said Bernstein analyst Mark Shmulik. “Google needed to be perfect, or face a repeat of being penalised for micro-misses.”

Revenue at Google’s core search-linked advertising business also rose 13 per cent. But longer-term, Pichai still faces questions on whether chatbots that provide instant answers will start to eat away at usage of its ubiquitous search engine.

He told analysts that early experiments of using generative AI to give more comprehensive answers to search queries “improves user satisfaction”. He added: “I’m comfortable and confident that we’ll be able to manage the monetisation transition here well.”

Other companies are joining the spending spree on AI. Both Apple and Amazon, which report first-quarter earnings next week, have said they will also invest heavily in computing power and staff to improve their products.

However, Microsoft’s Azure offering “is the only software business that is benefiting from AI at this point in the cycle”, said Brad Sills, research analyst at Bank of America. “Microsoft remains ahead of the curve in this massive new cycle.”

Additional reporting by George Steer in New York, George Hammond in San Francisco and Philip Stafford in London