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20-20: Ackermann looks to a new future

Thursday, 15 December 2011
20-20: Ackermann looks to a new futureThe internal structure of Deutsche Bank’s DNA “completely changed under chief executive Josef Ackermann,” says Konrad Becker, an analyst at private bank Merck Finck & Co. Ackermann not only extended the bank’s geographical reach and products but it also became much more client facing. He also introduced a more Anglo-American corporate governance framework with a clear hierarchy. This was revolutionary at the time. By Lynn Strongin Dodds.http://www.ftseglobalmarkets.com/

The internal structure of Deutsche Bank’s DNA “completely changed under chief executive Josef Ackermann,” says Konrad Becker, an analyst at private bank Merck Finck & Co. Ackermann not only extended the bank’s geographical reach and products but it also became much more client facing. He also introduced a more Anglo-American corporate governance framework with a clear hierarchy. This was revolutionary at the time. By Lynn Strongin Dodds.

The past few weeks have tested Deutsche Bank’s chief executive officer (CEO) Josef Ackermann. He unexpectedly withdrew his candidacy to become chairman of the supervisory board and police raided the bank’s Frankfurt offices and legal department. While headline grabbing, these glitches are not expected to diminish his legacy of transforming the one-time commercial bank into a global banking powerhouse and steering it through the market tumult of the last five years.

Historically, German corporate law shunned the idea of an American-style chief executive and an Anglo Saxon board where executives take responsibility for their own business lines. The preferred model was a Vorstand, a statutory managing board that promoted collective responsibility. Ackermann struck a compromise, although at the time it was considered groundbreaking. He became CEO, shrank the Vortsand and created a 12-man group executive committee, which he chaired. The new structure gave the Vorstand a strategy-making role, while the group executive committee, on which Vorstand members also sit, run the bank’s day-to-day operations.

He also severed long-held industrial ties, raising $5.3bn in the process, including the sale of a €1.6bn stake in Munich Re. He eliminated 14,470 jobs (18% of the workforce) and cut costs by one-third by closing retail branches and outsourcing management of the bank’s computer systems and real estate, and built out the bank’s US business. The Bankers Trust $10bn acquisition in 1999 was key in this regard. Although the purchase was not done on his watch (Rolf Breuer was chairman at the time), it provided a launch pad for Ackermann’s global investment banking ambitions.

“In the middle of the last decade, UBS was very profitable and it was the bank that Deutsche measured itself against, but then the financial crisis happened,” says Becker.  Deutsche Bank weathered the storm but did not escape unscathed. Ackermann often claims that the bank did not need a government injection  of capital, but critics note that in fact the bank (along with others) received the equivalent of a back-door bailout from American taxpayers when the US government intervened to prevent the insurer American International Group from collapsing.

Moreover, the bank faces litigation in the US tied to residential mortgages and in Germany regarding the mis-selling of complex financial products to municipalities. Separately, Ackermann himself is also embroiled in legal wranglings involving a former client, the late Leo Kirsch, and in early November 2011 prosecutors raided the bank’s offices looking for evidence of attempts to mislead the court.

Overall though, Ackermann has won plaudits for the way he has navigated the bank through extremely choppy waters over the past three years. Not everyone has been as happy. “The market capitalisation has more than halved since Ackermann and this has left a bitter taste in shareholder’s mouths,” says Michael Rohr, an analyst at Sylvia Quandt Research GmbH in Frankfurt, with the caveat:  “This has more to do with market conditions. Ackermann has had a strategic vision to transition the bank into a more stable business and has done a very good job with its risk management.”

Recent strategy involves a retreat from the investment banking business which contributes roughly 70% of the group’s total pre-tax profit and a return to commercial banking, retail and private banking. Strategic acquisitions are also on the agenda, among them Deutsche Postbank and Sal Oppenheim, Germany’s largest private bank. The bank is now expected to divest its asset management division— except for its profitable DWS retail franchise in Europe and Asia. A sale could raise $4.5bn which would improve the bank’s capital position in light of impending regulation.

The strategy is widely regarded as being driven by CEO-in-waiting Anshu Jain who, together with Jürgen Fitschen, will run the bank starting next May. Even so, Ackermann was not supposed to take a back seat in 2012; but now it looks as if he will retire. He was likely caught out by German law, which holds that  a chief executive of a listed company may not become its chairman without a two-year cooling-off period, unless 25% of shareholders endorse the move. In a fickle move of fate, Ackermann may not have received the support he anticipated and was put in an untenable position. Paul Achleitner, currently chief financial officer of insurer Allianz, is now mooted as the next chairman.

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