Welcome to the first "Abigail with attitude” column, a regular no-holds-barred commentary that takes a fresh, light-hearted look at the firms and people involved in the financial markets as well as the issues that keep bankers up at night. I aim to be different and daring rather than malicious and malevolent.
“You were always so outspoken,” my first City boss, matinee idol look-alike David Reid Scott (now chairman of corporate advisory firm Hawkpoint), sighed when I told him about my latest career adventure. Outspoken or not, the aim (with your help) is to leave the markets “shaken but not stirred”. So please send me your input and feedback (abigail@euromoney.com) and let me know what’s on your mind.
In February, Deutsche Bank chief executive Josef Ackermann announced excellent 2005 results: pre-tax profits of €6.4 billion, up more than 50%. Deutsche also achieved a 25% pre-tax return on equity. That’s good news for shareholders, especially as the shares creep towards the €100 mark.
But behind the headlines, is all hunky-dory? The main problem for Deutsche is that it has lost its identity. A decade ago “the Deutsche Bank”, as it was known, was Germany incarnate and we all knew what it stood for. Most of the revenues were made in Germany, the links with Germany’s leading industrial companies were incontrovertible and Germans ran the show.
Today it’s a different story – London is the centre of the firm’s investment banking operations and most of the money is made outside Germany. Revenues from the “homeland”, in relative terms, shrivelled to a mere 30% last year, with a concomitant decline in the influence of the good German burghers (although they’re trying to turn it round at home – see our interview with Jürgen Fitschen which will be published in our April issue). Thousands of domestic jobs have been slashed and, let’s face it, the bank isn’t even run by a German any more – the urbane Ackermann is Swiss. In a way, we are talking “a tale of two cities”. Is this sustainable in the long term? It certainly has implications for the culture of the firm and once the culture of a firm becomes blurred, the rot tends to set in pretty quickly (remember Bankers Trust?).
“Deutsche has made it to the top in investment banking and is no longer tainted by its commercial banking origins,” a competitor notes. And according to the league tables, that’s more or less correct – even though the debt rankings still look best.
This brings us of course to Anshu Jain, the 43-year-old co-head of Deutsche’s corporate and investment bank. Opinion is divided as to whether the Indian-born Mr Jain is overweeningly arrogant or intrinsically admirable. There is no doubt that he is extremely ambitious and, my sources say, not the easiest person to work for. But perhaps that’s just because he’s so much brighter than the rest of us. One insider even describes Jain’s style of command as “management by terror”. Nevertheless, Jain’s operations (which basically boil down to fixed income and equities) are rumoured to contribute virtually half of Deutsche Bank’s profits. That makes him a very Grand High Pooh-Bah in the bank’s hierarchy.
Lately, however, there have been a few investment banking banana skins that augur ill. In Italy, Deutsche seems to have been dealing with all the wrong people, including the disgraced Gianpiero Fiorani of Banca Popolare Italiana. Indeed Michele Faissola, Deutsche’s global head of rates, purportedly features in Italian police transcripts (decidedly inappropriate if you ask me – although Faissola seems to dabble in a lot of different things. I am reliably informed that he also co-owns a swanky restaurant in Mayfair, Giardinetto). And then there’s the grubby saga (which broke this January) of Anshul Rustagi, the synthetic CDO trader who allegedly overstated his trading position by £30 million. Is the all-conquering Jain suddenly running a leaky ship?
It was therefore with some interest that I read the recent ingratiating Financial Times profile of Jain. Jain claims that Deutsche makes 60% of its profits from “clever stuff” (whatever that means) as compared with 25% to 40% at most other investment banks. What will Deutsche’s more conservative shareholders make of that? Does it mean that Jain is too clever by half?
The article mentioned that, in the second half of 2005, Jain “ran through detailed unpublished data” with top analysts to prove that “he was less exposed to downside risk than peers”. Can this really be the case? Isn’t there something awry here? I thought that in this politically correct post-Spitzer era, banks are meant to bend over backwards to treat little retail investors (like moi) with the same love and attention as muscular institutional beasts. So next time Jain decides to be generous with unpublished data, could he please call me first?
But what intrigued me most about the FT piece was the unspoken questions: where and why? Where was Jain’s co-head of investment banking, Michael Cohrs, who merited only one slightly dismissive sentence? And what did Jain and his PR advisers expect to gain from the piece? Could it be that the audacious Jain is keen to raise his profile and be seen as a potential successor to Ackermann, who is due to retire in 2010?
A lot of people seem all too ready to forget that Ackermann has done a pretty good job at the helm of Deutsche. The fact that he could still face a gruelling retrial over the Mannesmann bonus case should have shareholders weeping at the prospect, rather than salivating at the potential for his early retirement, which might come as early as this autumn (indeed this possibility is whispered about in the bank).
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