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  SPIEGEL Interview with Deutsche Bank CEO Josef Ackermann: 'We're not Barbarians'

SPIEGEL Interview with Deutsche Bank CEO Josef Ackermann 'We're not Barbarians'

Part 2: 'Very Few Banks in the World Have Lost Money'

Ackermann: Okay, so now we're incapable, antisocial, removed and money-grabbing. We're not Barbarians! Many of us could earn a lot more by taking jobs in the United States or with private equity firms. But the overwhelming majority of us are less interested in the money -- of course, that too is important -- than in achieving something, in successfully running a company. That's far more rewarding that simply earning more and more money.

SPIEGEL: Many critics see the incentive system of stock options and bonuses as the root of the current bank crisis. They argue that these incentives seduce executives into taking excessive risks, like issuing loans to homeowners with poor credit or buying up these junk loans.

Ackermann: Then why were some of the biggest losses incurred where bonuses aren't even that big?

SPIEGEL: Are you referring to the German state-owned banks?

Ackermann: I'm referring to the fact that the bonus system among banks cannot be held out as the cause of the current turbulence in the financial markets. After all, a bonus is a consequence, not a precondition, of profits. The important thing is that the bonus establishes the right incentives. It should be oriented toward medium- and longer-term goals. The wrong approach is to tie a bonus to maximizing profits in the short term, thereby encouraging managers to take excessively high risks. There is certainly some room for improvement here and there. It's a question of risk management.

SPIEGEL: And this failed in many cases?

Ackermann: Some banks, at any rate, accepted risks that were out of proportion to their financial resources and performance.

SPIEGEL: How could it get this far in the first place? Why did American banks -- the source of the crisis in the first place -- lend so much money to financially weak borrowers, the so-called subprimes?

Ackermann: First of all, from the standpoint of social policy, it wasn't such a bad thing that banks were issuing mortgages to people that, because of their low incomes and lack of assets, would otherwise never have been able to afford to buy real estate.

SPIEGEL: The banks as do-gooders?

Ackermann: The fact is that this practice was apparently politically desirable, which explains why lawmakers didn't impose tighter restrictions on it. And everything was going well as long as interest rates went down and real estate prices went up. The problem didn't arise until interest rates started climbing. But until then, and it took a long time for that to happen, it wasn't such a bad social model, creating new wealth within broad segments of society. Even the subprime crisis hasn't completely destroyed this new wealth.

SPIEGEL: But it was predictable that it couldn't go well in the long term. In any event, there was no lack of warnings of an impending real estate crisis in the United States.

Ackermann: There have always been and always will be warnings -- warnings that China's growth is plummeting, that hedge funds will bring down the global financial system, and so on and so forth. If you want to avoid all risks, you'll soon be without risks to avoid, because you won't be in business anymore.

SPIEGEL: Being part of the game is everything?

Ackermann: If things are going up and you're not part of it, you'll make significantly less money and will be severely criticized for it. The fact that you're taking fewer risks won't do you much good. It is also possible to get out of a market too early. Running a bank successfully requires a constant balancing of risk and return. Despite all of the write-offs, very few banks in the world have lost money. In fact, most of them have continued to turn a profit. Some, like Deutsche Bank, have even achieved record returns. This tells us that the financial and banking system is stable.

SPIEGEL: At least if we assume the worst is already behind us. But it is possible that the crisis will infect other credit markets, that there will be massive write-offs in consumer loans, that the private equity industry will no longer be able to repay its billions in debt -- and that, finally, the entire house of cards will collapse. How great is the risk of such a system-wide crisis?

Ackermann: It is true that there will be further write-offs. Consumer spending will decline, and there will be problems in the business of credit cards and auto loans, especially in the United States. We are also seeing a price correction in terms of the debt associated with corporate takeovers. But all of this can be handled and will not lead to a system-wide crisis.

SPIEGEL: The banks were only able to issue so many loans -- and to do so with such reckless abandon -- because they immediately sold them to other market players. The Bundesbank (Germany's central bank) has proposed requiring banks to keep a portion of loans on their books in the future, to ensure better oversight. How do you feel about this?

Ackermann: It would be a significant hindrance to growth in the credit industry, and thus a drag on the economy as a whole.

SPIEGEL: So everything should continue the way it has been -- until the next crisis?

Ackermann: No, things should not continue as they have been. That's an impossibility, and it won't happen. We need more transparency and we need improvements in risk and liquidity management, as well as a few other things. The banks will undoubtedly not repeat the mistakes that led to this crisis. Perhaps they'll make new mistakes, but not the same ones again.

SPIEGEL: Deutsche Bank emerged relatively unscathed, because it got out of the American subprime mortgage business relatively early in the game. When did you realize that something was going wrong?

Ackermann: We knew that there were exaggerations in the real estate sector, and we expected a correction. The trick is always to stay in the game as long as profits keep coming in, but when the correction arrives, not to be overly committed anymore, first of all and, second, to quickly draw the necessary conclusions.

SPIEGEL: The weakest goes to the wall?

Ackermann: The problem is that such corrections never happen gradually but in spurts. Otherwise one could adjust to them.

SPIEGEL: When did you specifically have the feeling that it was time to get out?

Ackermann: During my summer vacation in Ticino (in Switzerland), when I had some time to read SPIEGEL… No, seriously: As soon as exaggerations start appearing, you have to be more careful and force yourself to view things with more perspective. That's why I'm proposing the idea of a new committee, a group of wise men and women, which could observe developments on the financial markets, possibly under the auspices of the International Monetary Fund, and sound the alarm when a crisis is imminent.

SPIEGEL: A sort of global panel of experts for the international financial markets?

Ackermann: Yes, one that observes market developments independently of business. The exaggerations in the subprime sector occurred in the last six to 12 months before the crisis erupted. If an indisputable authority had said, 12 months earlier: slow down in this lending sector and reevaluate the risks, then some things would certainly have gone differently!

SPIEGEL: In May 2007, Deutsche Bank sold loan packages 70 percent of which consisted of subprimes. By that time, the newspapers were already reporting that these mortgages were becoming a problem.

Ackermann: I don't know exactly what you're referring to. The fact is that no one really anticipated the ensuing plunge in prices. Our products were of the highest quality. But even the best bottles of Bordeaux become cheaper if the demand for them suddenly disappears.

SPIEGEL: Not only did you get out of the subprime business early enough, but you also bet large sums of money on a decline in the value of subprime mortgages. How much did you make?

Ackermann: (laughing) I'm a great fan of transparency. But there is also a kind of transparency that goes too far.

SPIEGEL: So far Deutsche Bank has weathered the crisis better than many of your competitors. Are you about to embark on a shopping spree?

Ackermann: We've made many acquisitions in recent years, just nothing really big. In the sectors in which we operate, we feel strong enough globally to be able to grow organically.

SPIEGEL: You plan to retire in 2010. Would a major deal be a crowning achievement for your career?

Ackermann: I don't need a monument. It'll be much more gratifying for me to hear people say, when I retire, that Deutsche Bank is in good shape.

SPIEGEL: Mr. Ackermann, thank you for this interview.

Interview conducted by Armin Mahler and Beat Balzli