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Categorized | Economy

Deutsche Bank faces post-Ackermann future

Posted on January 31, 2012

Josef Ackermann’s assessment of the year was bleak. It “confronted Deutsche Bank – and the entire financial industry – with enormous challenges . . . the extremely difficult world economic environment burdened the capital markets”, the chief executive said, insisting Deutsche was on the right track. “We have improved the quality of our balance sheet and strengthened our core capital,” he said.

A preview of Thursday’s annual results statement? Not quite. The words are from Deutsche’s 2002 annual report, the first Mr Ackermann signed as chief executive.

On Thursday the 63-year-old Swiss will present the bank’s annual results for the last time, after almost a decade bookended by the dotcom bust and a German recession, on the one hand, and the eurozone’s debt crisis on the other. Few of Mr Ackermann’s peers have lasted in the top job so long – and he also emerged unscathed from a criminal prosecution for his role in awarding bonuses while a Mannesmann board member – but when he steps down in May, to be succeeded by Anshu Jain and Jürgen Fitschen as co-chief executives, he will leave questions over how the bank can thrive in a post-crisis world.

The peak years of Deutsche’s financial performance on Mr Ackermann’s watch were 2006 and 2007, when net income topped €6bn, return on equity hovered at about 30 per cent and Deutsche’s balance sheet exceeded €2,000bn. The post-Lehman crisis of 2008 sent the bank plunging to a first annual loss, while hopes of a record €10bn of operating pre-tax profits last year fizzled as the market turmoil continued.

Investors who stuck with the bank through his tenure have seen little benefit. Deutsche’s market capitalisation was €27.3bn at the end of his first part-year in charge. It was €27.4bn at the end of last year.

If Deutsche is not much bigger, it is more global, particularly in its key investment banking activities. Mr Ackermann “transformed Deutsche from a regional bank to a global flow monster rivalling the major US banks in fixed income trading”, says Huw van Steenis, of Morgan Stanley. Matthew Clark, an analyst at Keefe, Bruyette & Woods, says: “Ackermann identified the themes of globalisation and bank disintermediation early on and . . . steered the bank to exploit them.”

Partly because so much competition has fallen by the wayside, Mr Ackermann remains bullish on investment banking earnings, even after adapting to regulation and structural changes after the crisis.

However, some of Deutsche’s activities during banking’s boom years have left it facing a string of lawsuits including a $1bn claim by the US Department of Justice over its role in the US mortgage market.

The last two years of Mr Ackermann’s watch was marked by an attempt to shift the bank towards more basic banking business, particularly in its home market, where Deutsche acquired Postbank, a retail rival. Shuffling the bank’s assets remains a work in progress, and Deutsche is expected to sell a clutch of asset management businesses.

Mr Ackermann also identified a need for banks to become more engaged with politicians and regulators. He carved out a role as an industry statesmen, grappling over regulation and fronting the Institute of International Finance, the bankers’ club involved in talks with Greece over a voluntary bond haircut.

But his view of the right leadership sparked an unedifying wrangle over his own succession. First he identified potential in Axel Weber before the former Bundesbank president was snapped up by UBS. Then Mr Ackermann tried and failed to prolong his own stay by joining Deutsche’s supervisory board.

That leaves doubts over how firmly Mr Ackermann stands behind Mr Jain and Mr Fitschen in spite of their long association: all three were part of the bank’s first “group executive committee” set up on the eve of Mr Ackermann’s accession to the top job.

For the German public, Mr Ackermann came to embody suspicions about “Anglo-Saxon” finance. But a former Deutsche executive says that, however polarising Mr Ackermann was to outsiders, internally he helped the bank gel, healing some “Frankfurt versus London” rivalries. It is something for Mr Jain and Mr Fitschen to ponder as they try to show the bank can cope with having two leaders in the post-Ackermann years.