By Tom Sims

FRANKFURT (Reuters) -Deutsche Bank shares were down 9% on Monday after news that a long-running lawsuit claiming it underpaid for its purchase of its giant Postbank division could cost up to 1.3 billion euros ($1.39 billion).

The issue is a blow to Germany’s largest lender, which last week posted better-than-expected earnings that boosted its shares. It is the latest in a string of problems to arise at Postbank.

Analysts at JPMorgan and RBC cut their target prices for Deutsche Bank, despite rating the bank “overweight” and “outperform”, respectively, and the shares deepened their losses as the day went on.

“It is disappointing that improved performance and a constructive operating environment are overshadowed by legacy litigation from a long time ago,” RBC analysts wrote in a note to clients.

Deutsche began its acquisition of the no-frills Postbank, with its millions of clients and roots in the country’s postal system, during the 2008 global financial crisis.

It was seeking to broaden its reach in Germany and a steady income stream after years of rapid international expansion. Instead, Postbank has become a source of consumer complaints, regulatory scrutiny, labour strife and now, a possibly costly lawsuit.

Deutsche Bank late on Friday unexpectedly announced that it would make a provision to offset possible claims in litigation in the suit following oral arguments at a hearing earlier in the day.

It said it “continues to disagree strongly” with any view that it underpaid. The bank did not specify the amount it had set aside but noted that claims totalled about 1.3 billion euros.

Deutsche said the provision would impact its second-quarter and full-year profitability.

In a separate announcement late on Sunday, Deutsche said the provision would “likely” amount to 1.3 billion euros in the second quarter, and it said it would “carefully assess” options for a possible settlement.

The bank warned it was too early to tell whether it would conduct another share buyback in 2024 in light of the turn in events.

Analysts at KBW said they believed a second buyback “will be scrapped altogether”.

Deutsche’s shares have made steady gains since steep falls early last year in the wake of bank rescues in Switzerland and the United States. They are up 26% this year.

($1 = 0.9325 euros)

(Reporting by Tom Sims; editing by Friederike Heine, Jason Neely and David Evans)

---