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02/02/2012 03:39 PM

Ackermann's Swan Song

Deutsche Bank Moves Toward an Uncertain Future

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Outgoing Deutsche Bank CEO Josef Ackermann presided over his final annual press conference on Thursday. His legacy will be that of transforming Germany's largest financial institution into a profit machine. But in the end, he lost control of the specters he unleashed.

Once again, it was Josef Ackermann's day. On Thursday, the Deutsche Bank CEO strode into the limelight for a press conference to present his bank's annual results. It was the 10th -- and final -- time that Ackermann would preside over such a gathering.

It wasn't the kind of departure he had been hoping for. At the beginning of 2011, he had confidently predicted pre-tax profits of €10 billion ($13 billion), a record that he wanted to be his legacy. But the euro crisis ruined it for him. The total came in at €5.4 billion -- nothing more than an average Ackermann year.

When the Swiss banker turns over his position in May of this year to the leadership duo of Anshu Jain and Jürgen Fitschen, he will leave behind a Deutsche Bank that is radically different from the financial institution that he took over in 2006. What was once a successful yet conservative German credit institution has become a global investment bank -- one which plays a role in all important markets and earns gigantic profits.

Many in Germany, however, view the bank's growth with skepticism. Ackermann has become the poster boy in the country for unscrupulous financial capitalism and the media has done little to counter that view. He is seen as only being interested in maximizing profits -- an economic principle that Germans have long been skeptical of, and one which has lost all acceptance since the beginning of the financial crisis.

Yet the idea of radically reforming Deutsche Bank did not originate with Ackermann: It was a process he inherited from his predecessors. As early as 1997, then-CEO Hilmar Kopper set a goal of a 25 percent return on equity. Shortly thereafter, Ackermann was made responsible for the growing investment banking department within Deutsche Bank, meaning he was essentially responsible for turning Kopper's goal into reality. It was clear from the beginning, after all, that a 25 percent return on equity cannot be achieved through traditional commercial and retail banking activities.

The Dark Side of Investment Banking

When Ackermann became management board spokesman in 2002 -- and particularly after he was named chairman of the board four years later -- 25 percent return on equity became his mantra as well. It was a goal that he never lost sight of, and one he was prepared to take great risks to achieve. During his tenure, Deutsche Bank became one of the largest traders of derivatives in the world. In the US, the Frankfurt-based bank plunged into the real estate market, often using dubious methods which have resulted in several cases pending against Deutsche Bank in American courts.

But the financial crisis led Ackermann to rethink his approach. It revealed the dark side of investment banking and showed all too clearly the weaknesses of his one-sided business model. In 2008, Deutsche Bank lost €3.8 billion, the first time in its proud history that the bank had lost money -- and it was Ackermann's ignominy.

From then on, balance became his new leitmotif; the company should no longer be completely dependent on investment banking. An immediate outcome of the new philosophy was Ackermann's 2010 purchase of a majority share in Postbank, a classic bank for small depositors. It was a move that just a few years earlier, he would have scorned. But now, grandma's savings were to provide Deutsche Bank with increased stability. Within Deutsche Bank, Ackermann himself became something of a moderator between the two worlds: between the profit-hungry investment bankers in London and the boring savings bank business in Bonn.

It wasn't the only evolution Ackermann has undergone in recent years: He has also transformed himself from being a pure businessman to being a politically-minded banker. It is the kind of progression that several of his Deutsche Bank predecessors also experienced, from Hermann Josef Abs, to Alfred Herrhausen to Kopper. All of them saw their position as having a political element as well. They were, to a certain extent, spokesmen for the German economy -- and were both loved and hated as a result.

Playing Both Roles

Ackermann had not actually intended to carry on the tradition. When he became spokesman of the board a decade ago, Berlin seemed far away. Now, though, he travels regularly to the German capital, and not just because his daughter lives here. Whenever a bank has had to be saved, a bankruptcy prevented or a group of German parliamentarians advised about the financial crisis, Ackermann has been present. And not everyone within Deutsche Bank has been happy about his frequent forays onto the political stage. Several times in recent years, he has been accused by bank leaders of neglecting his managerial responsibilities.

Ackermann had hoped to continue playing both roles -- that of his bank's foreign minister and internal moderator -- even after he stepped down. His original plan called for him to move from the CEO role to that of chair of the advisory board. In such a position, he would have been able to manage his own legacy.

But it didn't turn out as planned. Ackermann is to step down at the end of May, but his successors are to take over the day-to-day running of the bank already this week, now that the annual results have been presented to the press.

In the wake of Ackermann's departure, the bank is to be led by a triumvirate: Jain and Fitschen will pair up as co-CEOs and Paul Achleitner -- formerly a board member at Allianz and the ex-Germany head for the US investment bank Goldman Sachs -- will take over as chairman of the board of directors. At the economic summit in Davos, the trio posed for several photos. The fact that Ackermann wasn't involved in the photo ops speaks volumes.

Controlling the Specters

The bank's future now depends on which of the three takes over the leadership role. Most anticipate that Jain, a native of India, will be the one. Achleitner, after all, will have no operative role in the bank's management and Fitschen, who turns 64 this autumn, is widely seen as an interim solution.

Furthermore, investment bankers such as Jain are seen as being the strongest faction within Deutsche Bank. In recent years, they have received such a huge quantity of stock options that they have become the bank's largest shareholders, owning around a fifth of the company. Achleitner will not be in a position to ignore their voting strength.

The Ackermann era, however, was much less profitable for the rest of the shareholders. Deutsche Bank's stock price has halved in the decade he has been at the top -- despite his target of increasing shareholder value.

Jain will pursue this goal as well. Important bank investors have made it clear that they would like to see Deutsche Bank continue to play an important role on global financial markets. And should Jain indeed concentrate power in his hands, investment banking will surely remain a vital sector, limited only by new, stricter legal regulations.

Ackermann himself will no longer be part of the decision-making process. The specters that he once called forth have become autonomous and are grabbing for power. He no longer has any control over them.

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