Rolf Breuer, speaker of Deutsche Bank, defends the purchase of Bankers Trust
Where would you find a team that boasts a sumo wrestler, a black monk, an Indian chief, a Canadian bodybuilder, and a great white boss whose face is so perma-tanned that red ink won't stick to it?
These are the top managers of Deutsche Bank, although they do have many colleagues who escape such epithets, being ordinary men in suits.
The sumo wrestler is Hilmar Kopper, 64, chairman of the supervisory board, speaker of the bank until 1997, whose giant frame and booming voice led the charge into investment banking in the early 1990s while half the bank was obsessed with German unification. Now, from his non-executive position, he still pulls the strings, insiders say.
The black monk is Ulrich Cartellieri, 61, tall, with chiselled good looks, who sits next to Kopper on the supervisory board and is said to be "the mastermind behind the new Deutsche Bank". His father was a World War II tank commander, say colleagues, and he's the image of one himself "straight out of central casting". When he smoked a pipe he tamped it down with an 8mm shell case. He climbs Alpine peaks with Everest superman Reinhold Messner, who is fascinated by the parallels between management and mountaineering.
Five years ago while on the executive board, Cartellieri said the bank wasn't going fast enough and that he was scared by the pace of change. Deutsche's every move since then, guided by Cartellieri and Kopper, has been to beat the pace of change. "It makes smart, strategic moves," says a bank analyst, "then occasionally it falls flat on its face."
Cartellieri is "yesterday's man", says a former Deutsche banker. "He peaked in commercial banking 20 years ago." Indeed, the nine-man Vorstand are yesterday's men too, their former colleague concludes. "Why didn't they hire a senior partner from Goldman Sachs and begin to get investment banking right?" Cartellieri was against investment banking until his Pauline conversion in 1994, says a Deutsche banker. Then, being driven by the intellect rather than the heart, he threw his weight into changing the bank. Unfortunately, the executive board's consensus system is an enemy of flexibility and change. So the conversion of Cartellieri even five years ago was too late: we're at the end of the big-profit investment banking cycle and Deutsche is behind the curve.
It's easy to carp at what Deutsche Bank is doing. Its $10 billion purchase of Bankers Trust, completed in June, was judged by the street as one second-class bank buying another second-class bank: "Bankers Trust are a bunch of punters. Why didn't Deutsche buy something that has clients such as Lehman Brothers, PaineWebber, or DLJ (Donaldson, Lufkin & Jenrette)?"
But Deutsche Bank, which has had some bad times during the past five years, is beginning to present more coherent arguments for its apparently reckless charge into investment banking. Backed by some better results.
In the six months to June, it earned €1.8 billion ($1.9 billion) net, €560 million more than it did in the same half last year. Over half of that net income came from the global corporates and institutions division (top-tier corporate and investment banking), and 21% from asset management; in the first half of 1998 the contributions were 22% and 15% respectively. For one half-year at least Deutsche is looking more like an investment bank, although behind those figures lies a mixture of good luck and opportunism. The message getting through to the rank and file is that they can't rely on retail and commercial banking any more. Almost any alternative would be better.
From September 1, Deutsche's retail operations, plus its telephone and internet outlet Deutsche Bank 24, have operated as a separate division. That makes it easier to contemplate spinning them off entirely, or, as rumoured recently, cooperating with Dresdner's retail arm to close branches and cut costs.
Traditional domestic banking in Germany is dogged by low margins, which the private banks blame on subsidized public banking. Securitization and disintermediation are coming to euroland, as they did to the US. The top US investment banks have been winning market share in Germany since the early 1990s, especially in mergers and acquisitions and advisory business. Deutsche used to have 80% of the initial public offering market in Germany when IPO meant letting your house bank do the deal, until the late 1980s.
"We've never wanted to fight the bulge-bracket firms on their home ground [in the US] for domestic business," says Rolf Breuer, 61, speaker of the executive board, he with the year-round sun-tan. "What we want is to replace them here in Europe. That is feasible."
Echoes Thomas Fischer, board member in charge of treasury and risk management: "This move towards investment banking is more defensive, less aggressive than you might think: to pay for our branch banking." (Deutsche can't wean its customers off branch banking: while 80% would welcome internet access, 80% still want the bricks and mortar to be there.) Fischer, 51, with fully developed pectorals and a crushing handshake the Canadian bodybuilder returned to Deutsche in January after three years running the Landesgirokasse in Stuttgart, because he sees hope for the Cartellieri strategy. Three years ago as head of risk management he saw too many stultifying layers between him and the main board.
Stripping out those layers can be credited largely to Edson Mitchell, 46, who joined Deutsche in 1995 as head of global markets and fought for three years for the supremacy of product lines over the bank's regional fiefdoms. Mitchell, dubbed the Indian chief by Breuer because of the tribal loyalty he inspires in those who work for him, "tried to cut his people loose", says a bank analyst. "This was great. It opened up a willingness to consider a split, to create a corporate centre. Mitchell was the quarterback Cartellieri and others supported him." Swiss Bank Corporation had managed to do this without a fight in 1993. According to accepted wisdom, the corporate centre should be mean and lean, containing the bank's core functions such as audit, control, central funding, treasury, risk management and corporate strategy.