Succession: Deutsche off target as co-CEOs announced


Clive Horwood
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Q2 numbers put €10 billion target in jeopardy; Jain and Fitschen to take over from Ackermann.

The succession issue at Deutsche Bank has been resolved with the appointment of Anshu Jain and Jürgen Fitschen as co-chief executives

The succession issue at Deutsche Bank has been resolved with the appointment of Anshu Jain and Jürgen Fitschen as co-chief executives

The succession issue at Deutsche Bank has been one of the longest-running sagas in financial markets. Finally, at the end of July, the German bank announced its plans.

At first glance it looks like a fudge, but probably a necessary one. Anshu Jain, responsible for most of Deutsche’s group profits over the course of his 10 years in charge of its corporate and investment bank, will take half of the reins from next year.

His co-chief executive will be Jürgen Fitschen, currently the bank’s chief executive in Germany and also responsible for its regional management worldwide.

The pair will succeed Josef Ackermann, CEO of the bank since 2002, who will hand over day-to-day management responsibility a year earlier than planned. Rather than head into retirement, Ackermann has been nominated to succeed Clemens Börsig as chairman of Deutsche’s supervisory board.

Exactly how the new co-CEOs will divide their responsibilities remains to be seen, but a clue comes from what Ackermann told Euromoney last month: "Deutsche Bank has always very much been in the public focus... we are a proxy for Germany." (see Deutsche Bank CEO succession issue won’t go away, Euromoney July 2011)

A large part of Ackermann’s role, and those of his predecessors, has been to deal with the political and public implications of that status. Deutsche could not copy HSBC, where Douglas Flint was made executive chairman with oversight of issues involving politicians, regulators and shareholders, leaving former banking and markets chief Stuart Gulliver to run the business as CEO. In Germany, the role of the supervisory board chairman is just that – one of supervision of the management team, rather than any executive responsibility.

Jain’s performance in making Deutsche one of the world’s best investment banks, and providing as much as 70% of the bank’s profits, made it inconceivable that he could be passed over as chief executive when Ackermann stood down – similar to the situation that Bob Diamond faced at Barclays.

Domestic issues

But Jain is a UK citizen who does not speak German. A Deutsche insider says that a supervisory board member told him they couldn’t appoint Jain as sole CEO because he "really has no understanding or feel for domestic German issues". These issues have become more important again after the bank purchased Postbank, which is planned to rebalance Deutsche’s business mix away from the CIB and more into retail and its home market.

These responsibilities will now fall primarily to Fitschen, it can be assumed. One uncertainty remains: Fitschen’s contract runs to 2015, whereas Jain’s runs to 2017. Perhaps it is felt that after four years as co-CEO, Jain will have built the credentials in Germany required to be given sole charge of the bank.

Having Ackermann as chairman of the supervisory board will no doubt promote continuity and give the new leaders a sage source of counsel, although having run the bank for a decade he might find it a little difficult to give his successors the independence that he enjoyed.

The most pressing task for Ackermann, however, is to deliver on the ambitious earnings targets that he has set for the bank in what will now be his last full year as chief executive.

Last year he committed Deutsche to making €10 billion in pre-tax profit for 2011. Most analysts doubted such a target could be conceived – the consensus at the time was €7 billion.

A stunning set of Q1 results, in which Deutsche delivered pre-tax profits of €3.5 billion, made it look as if Ackermann would prove his doubters wrong.

But in a difficult earnings season for many of the world’s biggest investment banks, Deutsche Bank disappointed with its Q2 numbers. Net profit came in at €1.2 billion, up 3% on the previous year. What concerned investors was Ackermann’s admission that, given the turbulent state of global and particularly European markets, targets within the corporate and investment bank "may now be difficult to achieve" this year. FICC revenues fell by 37% over the period.

However Ackermann’s desired rebalancing of Deutsche’s business mix away from investment banking seems to be working: private clients and asset management and transaction banking accounted for 50% of group profit before tax.

Abigail with attitude: Co-chiefs could leave Deutsche vulnerable to eurozone crisis
If the appointment of co-chiefs leads to internal squabbling and discord inside Deutsche, the board might have let a Trojan Horse into the German citadel.