For many people, Deutsche Bank CEO Josef Ackermann is a hero of the German business world. But for one leading economist, at least, the Swiss banker is nothing less than a villain.
In an interview with the left-leaning German daily Die Tageszeitung published Thursday, Simon Johnson, former chief economist of the International Monetary Fund, described Ackermann as "one of the most dangerous bankers in the world."
Johnson singled out Ackermann's famous target of a 25 percent pretax return on equity for particular criticism. He said such returns were only possible because Ackermann knows that Deutsche Bank is too big to fail and that it would be "rescued by taxpayers" if it was faced with bankruptcy. Return on equity is calculated by dividing profit by the capital invested.
Johnson, who was chief economist of the IMF from March 2007 to August 2008 and now teaches at MIT, is considered an expert on financial crises. He is the co-author of the popular blog "The Baseline Scenario," which examines the causes of the 2008 crisis and its aftermath.
In Johnson's view, there is the danger of a new crisis occurring if the capital rules for banks are not made significantly tighter. He told the newspaper that the new Basel III rules -- which will require banks to hold top-quality capital equal to at least 4.5 percent of assets by 2015, rising to 7 percent by 2019 -- are "absolutely useless." Instead, he argues, bank capital reserves have to be equal to between 20 and 45 percent of total assets. Deutsche Bank currently has a capital ratio of just 4 percent, he said.
'Recipe for a New Crisis'
In the interview, which was published in German, Johnson argued that banking regulators are refraining from introducing stricter rules because they believe that major economies need large banks that should not be regulated too tightly. That amounts to granting banks permission to speculate, he said. He accused banks of taking reckless risks by borrowing huge amounts of money which are not sufficiently backed by capital reserves. The taxpayers effectively secure the loans, Johnson said, describing it as a "classic recipe for a new crisis."
Ackermann's target of a 25 percent return on equity has long been considered controversial by some bankers and politicians, who claim it far exceeds profit margins in other industries. "The fact that banks and investors expect a return of 25 percent, while customers and companies earn returns of less than 10 percent, means that things will inevitably go wrong," Frank-Walter Steinmeier, a senior member of the center-left Social Democratic Party, said back in 2008.
Deutsche Bank has always rejected such criticism, claiming that statistics show that German industry as a whole generated average returns on equity of over 30 percent in the period 1994 to 2007. The bank also argues that it needs to offer investors high returns in order to be able to compete with other industries for scarce capital.