BRP Renaud und Partner mbB
BRP Renaud und Partner mbB: Profit participation rights for DEXIA Kommunalbank Deutschland GmbH (formerly DEXIA Kommunalbank Deutschland AG)

Due to what in its view is the unlawful treatment of participation certificate holders, BRP Renaud und Partner mbB (“BRP“) law firm will be bringing an action before the District Court of Berlin for participation certificate holders in DEXIA Kommunalbank Deutschland GmbH, formerly DEXIA Kommunalbank Deutschland AG (“DEXIA“) before the end of the day of 31 December 2018. The following DEXIA participation rights are affected:

With this action, Plaintiffs are challenging the multiple participation in the losses carried forward from the previous years as well as DEXIA’s influencing of earnings and accounting activities from fiscal year 2011 up to the maturity date of the last participation certificates at the end of fiscal year 2017.

Although DEXIA has made large profits since fiscal year 2012, particularly in fiscal year 2016, it precluded profits and therefore prevented profit participation capital from being replenished and (past) dividend coupons from being (re)paid based on the influencing of earnings and accounting activities that were undertaken continuously up to the maturity date of the last participation certificates at the end of fiscal year 2017, which in BRP’s view were calculated to run contrary to the interests of participation certificate holders.

Immediately after the maturity date of the participation certificates, hence bypassing the contractual obligations to replenish profit participation capital and repay dividend coupons, DEXIA reported large profits in the first half of fiscal year 2018 based on the reversal of the influencing of earnings and accounting activities taken in the previous fiscal years and then paid out 125 million euros in advance dividends to its holder, DEXIA Crédit Local S.A.

This pay-out of advance dividends was made possible by influencing results and undertaking accounting activities at the expense of participation certificate holders in the previous years. For example, DEXIA made inflated value adjustments to HETA debt instruments in fiscal year 2015. Due to these inflated value adjustments, DEXIA reported an annual loss of 99.5 million euros in fiscal year 2015, by which the balance sheet loss including the losses carried forward from the previous years increased significantly, in which DEXIA repeatedly had the participation certificates participate multiple times. DEXIA did not share the corresponding profit of 139.6 million euros from the acceptance of the repurchase offer for the HETA debt instruments in the following fiscal year of 2016 – the flip side of the loss participation in the previous fiscal year – with its participation certificate holders. Instead of replenishing the profit participation capital that had diminished considerably due to the – inflated – value adjustments made to the HETA debt instruments and repaying the (past) dividend coupons, DEXIA effected negative profit contributions in the triple-digit million-euro range by prematurely terminating derivative transactions and deferred earnings into future fiscal years, after the contractually stipulated claims to replenishment and (re)payment of dividend coupons on the part of its participation certificate holders had expired.

Through this practice, by which the participation certificate holders in fact repeatedly participated in one-time (pending) losses, the certificate holders being completely deprived of the earnings corresponding to the one-time (pending) losses and, in balance sheet terms, said earnings being allocated solely to the holders of the issuer after the reimbursement and dividend coupon (re)payment claims had expired, in BRP’s view, DEXIA breached its contractual obligations towards the participation certificate holders.

In the opinion of BRP, due to the influencing of earnings and accounting activities, which were calculated to run contrary to the interests of the participation certificate holders, the participation certificate holders are entitled to damages in the high double-digit million-euro range.

DEXIA has already recognised an action brought before the District Court of Berlin against DEXIA by a private investor for, inter alia, repeated participation in losses carried forward due to the repeated participation of participation certificates in losses carried forward from the previous years. While it had its own participation certificate holders participate multiple times in the losses carried forward, it is significant that DEXIA successfully defended itself against this practice in its capacity as a participation certificate investor, the ostensible permissibility of which it asserts against its own participation certificate holders, thus generating extraordinary earnings of 9.4 million euros in fiscal year 2016.

However, instead of informing the capital market of these circumstances, which were not known publically and which were likely to have a significant influence on the market price of the DEXIA participation certificates that had not yet reached maturity and that were identically formulated at that time, DEXIA made an ad-hoc announcement shortly after it had partially recognised the legal action. In this ad-hoc announcement, DEXIA disclosed its intention to repurchase profit participation certificates which had not yet reached maturity in fiscal year 2017. In an obvious effort to avoid further legal actions on the part of its participation certificate holders, it then tried to repurchase the bearer profit participation certificates at a price that was 25 % of par value and therefore below market price and even below the redemption value that it could expect itself following continued discriminatory dealings. Nor did DEXIA disclose this in its annual reports. To the contrary, DEXIA announced in its annual report for fiscal year 2016 that the courts had found in its favour “with respect to the large majority of the matter in dispute”, but failed to mention that, in one of the proceedings, it had recognised the action due to repeated participation of the participation certificates in the losses carried forward from the previous years.

We advise investors who hold the aforementioned participation rights to unite in challenging these practices, to contact us immediately and to join the group of investors that we represent.

Immediate action is required.

Claims for damages due to the influencing of earnings and accounting activities on the part of DEXIA in fiscal year 2014 will become time-barred at the end of the day, at midnight, on 31 December 2018.

Investor Contact:

Attorney Aljoscha Schmidberger
Email: Aljoscha.Schmidberger@brp.de

BRP Renaud und Partner mbB
Königstraße 28
70173 Stuttgart
Germany
Tel.: +49 711 16445-302
Fax: +49 711 16445-100