In a ruling that could set an important legal precedent, Deutsche Bank "failed to fulfill its advisory obligation ... concerning a highly complex product," the German Federal Court of Justice in Karlsruhe said.

The highest German court ordered Deutsche Bank to pay 541,000 euros ($768,000) to the plaintiff, a bathroom equipment manufacturer known as Ille Papier Service in the state of Hesse, who bought such a product in 2005.

The so-called "spread ladder swap" consisted of exchanging long-term credits for short-term ones in the aim of earning money on lower short-term credit rates or paying lower interest rates on debt.

Deutsche Bank signed several hundred such contracts with municipalities like Pforzheim in southwest Germany and Hagen in the northwest, as well as with companies like Ille.

But when short-term rates rose during the financial crisis, the bank's clients lost several hundred million euros from the deals.

The federal court's ruling was widely anticipated by many who have filed similar actions against Deutsche Bank or others that sold similar financial products.

"We will examine the ruling closely," a Deutsche Bank statement said.

"Only after that will we be able to say if other financial activites might be affected, and to what extent," it added.

Deutsche Bank faced a total of eight complaints before the federal court and 17 others that were being examined by lower courts, the statement said.

The amount of damages and interest being sought "is very limited," Deutsche Bank stressed.

But it might just be the tip of the iceberg, given the total amount of losses suffered by bank clients on derivative credit products, lawyers said.

"I think the total amount of damages suffered might come to a billion euros," said Jochen Weck, a lawyer hired by Ille.

Weck told AFP that Deutsche Bank sold more than 700 similar investments to its clients.

The federal court said that Deutsche Bank had placed itself in a "gross conflict of interests" in the case ruled on Tuesday, because it stood to gain money if Ille lost its bet.

Weck said Deutsche Bank had earned 80,000 euros at the company's expense.

"It's a good ruling," commented Klaus Nieding, a lawyer who represents 60 companies and municipalities that signed similar contracts worth around 160 million euros.

"We are also looking at the possibility of re-opening old cases," he added.

No lawsuits filed by local goverments have been ruled upon so far because judicial authorities have said officials should have known what they were doing.

"They were not complete novices," agreed Udo Steffens, head of the Frankfurt School of Finance.

"These cities wanted to earn money, they made a bet and they lost. That is the market economy. Now they say they did not want to place bets," he scoffed.

Similar lawsuits have been filed in the United States and in Italy, where the mayor's office in Milan has accused four banks, including Deutsche Bank, JPMorgan and UBS, of hoodwinking it with overly complex financial products.

Some local French governments that say they were victims of "toxic loans" have also filed lawsuits to obtain compensation from their banks.