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Deutsche Bank announced record pre-tax profits of €2.3 billion for the third quarter of 2024, marking a significant 31% increase compared to the same period last year. This strong financial performance is attributed in part to the bank’s ability to release €440 million from litigation provisions related to settlements from its Postbank takeover case.

Even without the litigation provision release, the bank’s pre-tax profit for the quarter stood at €1.8 billion, a record figure that reflects a 6% increase from Q3 2023. After tax, profits not accounting for the Postbank litigation impact were reported at €1.7 billion, a notable jump of 39% from the previous year.

For the first nine months of 2024, Deutsche Bank recorded a pre-tax profit of €4.7 billion, a 5% decline from the same period in 2023, largely due to the €900 million impact of the Postbank litigation. However, when excluding litigation effects, the bank’s pre-tax profit increased by 13% to €5.6 billion.

CEO Christian Sewing emphasized the bank’s successful navigation of legacy litigation issues while achieving record operational profits. “In these three months, we made important progress in putting legacy litigation matters behind us, while also producing a record third-quarter profit in our operating business,” Sewing stated. He added that Deutsche Bank is well-positioned to assist clients amid current uncertainties and expressed confidence in the bank’s trajectory toward profitable growth and increased capital distributions to shareholders.

In a separate but related matter, the Higher Regional Court of Cologne ordered Deutsche Bank to compensate Postbank investors who alleged they were underpaid during the bank’s 2010 acquisition of Postbank. The court upheld a previous judgment that the investors should have received €57.25 per share, reflecting the stock price in 2008, rather than the €25 they were paid. The claimants are now pursuing a total settlement of €100 million.

Deutsche Bank responded by stating it would analyze the judgment but believes it is essentially fully protected against further financial impact due to existing provisions that cover all outstanding claims, including accrued interest. The bank reported that any additional financial repercussions would likely be limited to approximately €2 million per month in further interest.

Despite the ongoing litigation, Deutsche Bank noted that it has reached settlements with 70% of plaintiffs in the Postbank takeover case, representing 62% of total claims by value. As announced earlier, the bank anticipates a positive effect on its pre-tax earnings from the settlements, which have been reflected in its third-quarter results.

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BMW Reports Sharp Profit Drop Amid Recall and Slump in Chinese Sales

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BMW AG, the iconic German automaker, has reported a dramatic decline in quarterly profits, weighed down by a massive vehicle recall and slumping sales in China. The company, which includes the Mini and Rolls-Royce brands, saw its pre-tax profits fall by nearly 80% to €838 million for the three months ending 30 September, compared to the same period last year.

Revenue also took a significant hit, dropping over 15% year-on-year, while return on sales plummeted from 10.6% to just 2.6%, reflecting a tough quarter for the company.

The poor performance can largely be attributed to a global recall of 1.5 million vehicles due to a faulty integrated braking system (IBS) supplied by Continental AG. The recall led to a drop in vehicle deliveries and higher warranty costs, which “notably impacted earnings,” according to BMW’s financial report. In total, deliveries in the automotive segment were down by 13%, with a particularly steep decline of almost 30% in the Chinese market.

“The challenging market environment in China is also having an effect. Despite the stimulus measures implemented by the Chinese government, the general economy remains affected by low consumer confidence, which is having a knock-on effect on sales volumes,” the company said in its statement.

However, BMW’s electric vehicle (EV) sales showed strong growth, providing some positive news amid the downturn. The company reported a 19.1% increase in battery electric vehicle (BEV) sales for the first nine months of 2024. The rise in EV sales is expected to continue, with BMW anticipating that lower commodity prices, particularly for battery materials and precious metals, could further boost this segment.

Despite challenges in China and potential trade tariff impacts from the upcoming US administration, BMW is finding some relief in its European markets. While no individual market showed growth in the quarter, vehicle sales in Europe declined by just 1% from July to September, and overall deliveries for the year-to-date grew by 1.4%.

Looking ahead, BMW expects further challenges in the remainder of 2024. The company predicts a continued drop in profits due to the lingering effects of the IBS recall and ongoing low consumer confidence in China. “The delivery stops related to the supplied Integrated Brake System (IBS) and a sustained drop in consumer confidence in China will continue to have an impact for the rest of the reporting year,” BMW warned.

The automaker has also indicated that deliveries are expected to remain lower in the final quarter of the year, with no significant recovery in sight for the Chinese market.

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Bank of England’s Rate Cut May Stall Amid Inflation Concerns Following Budget

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The Bank of England’s latest decision to cut interest rates may mark the last reduction for a while, as new forecasts suggest inflation could climb following recent Budget measures. The Bank cut its interest rate from 5% to 4.75%, a widely anticipated move, but it signaled caution over future cuts due to expected inflationary pressures from the Budget’s spending increases.

Governor Andrew Bailey indicated that while rates are set to decline gradually, any additional cuts would be approached conservatively. “We must be careful not to reduce rates too quickly or by too much,” Bailey said, hinting that the Bank is likely to keep rates steady during its December meeting. Investors, in turn, now anticipate no further reductions this year.

Despite falling below the Bank’s 2% target in September, inflation is expected to tick up in the near term, partly driven by higher gas and electricity prices last month. The Bank previously forecast inflation would stabilize at 2% by 2026, but this target has now been pushed back to 2027.

The Monetary Policy Committee (MPC) voted 8-1 in favor of the recent rate cut, with member Catherine Mann dissenting. Mann argued that the Budget’s provisions, such as VAT on private school fees and a national bus fare cap, are likely to spur higher inflation and suggested caution in lowering rates further.

Sarah Coles, head of personal finance at Hargreaves Lansdown, noted that the new Budget introduces additional borrowing, a higher national living wage, and employer National Insurance contribution increases, all of which could drive inflation. “The Bank of England has delivered one more cut, but we don’t expect any further reductions soon. With these budgetary changes, the Bank remains wary of pushing rates down too much,” Coles said.

The slower pace of rate reductions means mixed news for consumers. Savers could see slightly higher returns, but mortgage borrowers may face continued challenges, as average mortgage rates remain high. Moneyfacts, a financial data company, reported that the current average two-year fixed mortgage rate is 5.4%, while a five-year fixed rate is 5.11%.

Over a million mortgage borrowers on tracker or variable-rate deals will see a decrease in their payments due to the recent cut. However, mortgage rates are still high compared to much of the past decade, putting added pressure on household budgets.

The rate cut also impacts savers, as returns on accounts may drop. Current easy-access accounts are averaging around 3% interest annually, and some consumers are concerned about declining returns. Claire Hopwood and Gavin Laking, who are saving for a house purchase, said recent cuts have already affected their savings. “We enjoyed a 4.5% rate, but now it’s dropped to 3.9%,” Laking noted.

Last week’s Budget included £28 billion in additional annual borrowing and £40 billion in tax-raising measures, with the largest being a rise in employer National Insurance contributions. Economists say that companies might pass these costs on to consumers, potentially slowing wage growth.

The Bank also adjusted its growth forecast for 2025 and projected that unemployment could fall from 4.7% to 4.1%, reflecting a cautiously optimistic outlook on the economic impact of the Budget’s increased spending. Chancellor Rachel Reeves welcomed the rate cut, acknowledging it as a relief for families but stressing the significant challenges many still face following previous fiscal policies.

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Netflix Offices in Paris and Amsterdam Raided in Tax Fraud Investigation

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Paris, France – French and Dutch authorities conducted raids on Netflix offices in Paris and Amsterdam as part of a collaborative investigation into alleged tax fraud, according to French judicial sources. The investigation, which began in November 2022, focuses on potential tax evasion and unreported earnings by the global streaming giant.

Netflix, headquartered in Los Gatos, California, has yet to comment on the raids directly, but the company reiterated its commitment to adhering to tax laws in every region it operates. The office in Amsterdam, Netflix’s European headquarters, oversees operations across Europe, the Middle East, and Africa.

The investigation in France is being led by the National Financial Prosecutor’s Office (PNF), a specialized unit responsible for handling high-profile financial crimes. Officials from the PNF are reportedly scrutinizing Netflix for allegedly “covering up serious tax fraud and off-the-books work.” The inquiry includes examining Netflix’s tax filings for 2019, 2020, and 2021, years during which the company is suspected of minimizing reported profits to reduce its tax burden in France.

Authorities in the Netherlands conducted simultaneous searches at Netflix’s Amsterdam office, working closely with French investigators. Officials from both countries have been coordinating efforts for months, according to French judicial sources.

The investigation was initially prompted by concerns that Netflix may have shifted revenue from France to the Netherlands, allowing it to benefit from more favorable tax arrangements. French media outlet La Lettre reported last year that until 2021, Netflix declared its French-generated revenue in the Netherlands, effectively lowering its tax payments in France. After changing this practice, Netflix reported a sharp increase in revenue in France, jumping from €47.1 million ($51.3 million) in 2020 to €1.2 billion in 2021.

However, the authorities are now investigating whether Netflix continued efforts to limit reported profits after 2021. If confirmed, such actions could indicate an ongoing strategy to minimize tax obligations.

Netflix launched its streaming service in France over a decade ago, opening a dedicated Paris office in 2020. Since then, the company has garnered around 10 million subscribers in the country, according to AFP news agency, making it one of the largest streaming platforms in the region.

The outcome of the investigation could have significant implications, as European governments have been increasing pressure on tech giants to ensure fair tax practices. The European Union has previously taken steps to address tax loopholes and boost transparency, particularly concerning companies with multinational operations that generate significant revenue from European consumers.

This investigation marks one of the latest moves by European authorities to address concerns about tax evasion by large technology firms. Depending on the findings, Netflix may face financial penalties or be required to alter its financial reporting practices in the region. The developments also come amid a broader push by European governments to standardize corporate taxation and prevent revenue shifting across borders.

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