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02/05/2010

There are few personalities in Germany quite as divisive as Josef Ackermann, CEO of Deutsche Bank. On the one hand, he managed to successfully steer the bank through the rough waters of the financial crisis, despite making a loss of €3.8 billion in 2008. Had Ackermann's bank wobbled to the same degree as numerous other leading global financial institutions did, German tax payers would likely have had to dig even deeper into their pockets.

On the other hand, many Germans see him as the embodiment of capitalist greed. He has never quite lived down the 2004 photo of him flashing the victory sign as he entered a courtroom for a trial focusing on possible irregularities relating to the Mannesmann takeover of Vodafone. Furthermore, in the heat of the financial crisis in 2008, he said he would be "ashamed" if Deutsche Bank were to take state money -- after having demanded that the German government assemble a gigantic bailout package in the first place.

On Thursday, Ackermann announced that his bank was back in the black. Deutsche Bank posted a profit of some €5 billion for 2009. Some two-thirds of the profit came from the investment banking sector, much of it coming from fees relating to bond issues as both companies and countries sought to raise cash in the height of the crisis.

Ackermann also announced that stockholders could expect a relatively modest dividend as the bank sought to improve its equity ratio. In addition, Ackermann indicated that Deutsche Bank was adjusting its bonus payment system by boosting base pay by 5 percent to 30 percent and reducing bonuses. Bonus payments are also to be stretched out over several years to reduce emphasis on short-term profits.

And he spoke of the values that a financial institution must adhere to, that banks cannot be only driven by greed and that they need to maintain close ties with the rest of the real economy.

Significantly, however, Ackermann did not mention his long-standing goal of achieving 25 percent return on equity. For years, the goal has been lampooned as fuelling a high risk business model. Capitalism critics blasted Ackermann for holding true to the 25 percent target even as the global financial markets collapsed in 2008 and early 2009. On Thursday, Ackermann announced a 15 percent return on equity.

Still, Deutsche Bank's fourth-quarter was below expectations. That, combined with the modest dividend's paid out by Deutsche Bank led to a slide in the company's stock price on Thursday. German papers on Friday take a look at Deutsche Bank.

The Financial Times Deutschland writes:

"The 25 percent goal has likely been discarded for the coming fiscal year and beyond. Investors interested in mid-term success shouldn't grieve too much. The chances that Deutsche Bank successfully manages to balance risky business sectors like investment banking against safer fields like private and corporate banking -- thus strengthening itself relative to its competitors -- are good."

"Investment banking remains the most profitable sector for Deutsche Bank. It makes sense that it would continue to grow and make acquisitions in the market segment. The fact that fourth quarter profits came in much lower than at competitors like Goldman Sachs is sure to be an annoyance for Ackermann. But he is likely to catch up should the US government fulfil its plans to prevent American banks from operating hedge funds or engaging in proprietary trading."

"Deutsche Bank continues to profit twice over from state financial assistance: indirectly because it saved the system from collapse. And directly because Deutsche Bank managed to avoid having to take advantage of such aid and as such is free of state meddling. In such a context, Deutsche Bank can easily live with a 15 percent return on equity."

The business daily Handelsblatt writes:

"The times during which the quality of a bank was judged primarily on the level of its return on equity have passed. Deutsche Bank boss Josef Ackermann's 25 percent target, which for years was seen as a benchmark for the financial sector and thus a target for critics of capitalism, is obsolete. He should bid it farewell."

"As a result of the financial crisis, it would indeed seem as though many banks have become more modest and warier of risk -- a development that has not been welcomed by the stock markets, as one can see by the fall in the Deutsche Bank stock price on Thursday. Investors too need a rethink."

Conservative daily Die Welt writes:

"Josef Ackermann is on the right track. As recently as the annual meeting of the World Economic Forum in Davos, Ackermann warned against too much state regulation -- which generated prompt criticism. The lack of introspection and unwillingness to reform among some bankers makes the entire sector look bad. It doesn't look good when one warns against state regulation but then fails to present a plan for how to avoid excesses in the future."

"Ackermann's appearance on Thursday, by contrast, was a helpful one for a banking sector under fire. He emphasized that the bank cannot only be driven by a thirst for money; he spoke of values and the necessary bond between banks and the rest of the economy. That may sound to some like a socialist utopia, but it is a necessary message should he want to be taken seriously in the political world. Whether one likes it or not, banking regulation -- one of the most complex issues that exists in business -- has become an important policy issue. Managers have to get used to it."