On December 22 2000, Edson Mitchell was killed in a plane crash. His death has deprived Deutsche Bank of a talented banker and a key figure in its transformation from a small player into a bulge bracket investment bank. Last year Deutsche Bank won Best Bank in Euromoney's awards for excellence, largely in recognition for the transformation Mitchell engineered. Deutsche recruited the American in 1995 from Merrill Lynch, where he had helped build up the bank's derivatives business and ran fixed income. He joined as head of global markets at Deutsche Morgan Grenfell (DMG), Deutsche's then newly-launched investment banking arm.
Mitchell had big plans. Derivatives played a part across all asset classes and he used them as a thread to integrate the parts of the business he was responsible for - commodities, debt, foreign exchange and, later, equities.
His success story during his 15 years at Merrill Lynch undoubtedly gave him the credibility to push through changes at DMG. His ambition was to leverage Deutsche Bank's client base throughout Europe, while drawing together the business into a coherent whole.
These changes were not universally welcomed. One of his first moves was to bring together DMG's nine trading floors in Germany, reportedly putting a stop to the inter-departmental bickering that had meant business that should have been done in-house was being done outside the bank. As a result, DMG now had a central risk book - a safer policy than having nine separate ones - and began to quote one price to clients, reducing the bank's exposure to being regularly arbitraged by nimbler firms.
When some senior staff left in protest, Mitchell was unperturbed. His vision was clear and he stuck to it. In little under two years, DMG's share in government bond trading had risen to a market-leading level. Its fixed-income business alone grew to account for more than 60% of the investment bank's total profits.
In 1998, Deutsche Bank bought Bankers Trust, which was merged with DMG into the Global Corporate and Institutions (GCI) division. This was part of an overall restructuring of Deutsche Bank into five units: GCI, global technology and services, asset management, corporates and real estate, and private and retail banking.
Some say that this marked the beginning of Mitchell's true ambition for Deutsche Bank - to take it into the US market and eventually rival his former employer, Merrill Lynch. Throughout his time at Deutsche, Mitchell kept close ties with his former colleagues at Merrill, mostly poaching them as new recruits in Europe. To have topped one of the largest US investment banks on its home turf would have been a dream come true for him. In June last year, Mitchell was appointed to the Vorstand, Deutsche Bank's management board, giving him even more authority to take the bank in the direction he wanted. He was even tipped to succeed Josef Ackermann, chairman-elect of Deutsche Bank and head of investment banking, within 18 months.
"Edson had his dream job," says TJ Lim, head of international debt markets at Merrill Lynch. "He dreamed about running investment banking for Deutsche Bank, and when he joined the board he could see his dream coming true. He was about to embark on the next phase of his career. I feel just terrible for him."
Lim was recruited by Mitchell to join Merrill Lynch in 1988. Their paths crossed again a year ago, when Deutsche Bank and Dresdner Bank were in merger talks. At that time, Lim was working at Dresdner Kleinwort Benson as co-head of global markets. One week before the deal was called off, in a move Mitchell is thought to have advocated, Lim left to go back to Merrill Lynch. He reportedly feared the redundancies that were bound to result from the investment banking overlap between the two firms. It was not so much fear for his own job, as apprehension at the prospect of having to lay off others, that led to Lim's move.
Mitchell is said to have been rather less sentimental when it came to firing employees. Though he was a charismatic, inspirational and respected leader - "He was very amenable and approachable, and he made a lot of time for his people," says a spokesperson for Deutsche Bank - he was a hard-headed businessman for whom productivity was sacred. If someone didn't live up to his expectations, they could expect to be unceremoniously ejected. Those demonstrating tenacity and the desire to succeed were rewarded with generous bonuses. Mitchell himself is said to have earned well in excess of £10 million a year. Tales of extravagant pay abounded at DMG.
Mitchell's cheque-based philosophy had its critics, but it worked. He gathered together a loyal team of friends and peers, and built Deutsche a top-grade investment banking arm. By bringing in a team to create the Autobahn bond-trading system early in 1996, Mitchell also demonstrated great insight, embracing e-commerce long before many other big banks had even realized it existed. That Bloomberg-based platform is now one of the most respected in the market.
The question on everyone's lips today is whether Mitchell also built a succession plan into his legacy, to ensure Deutsche Bank's continued progress. The answer is probably not. Word from the bank is that it is business as usual. But the markets are unsure about how to react to Mitchell's sudden death.
In a bid to calm investor nerves, Deutsche Bank announced part of its restructuring plan earlier than expected, on January 3. The plan had been drawn up with Mitchell, and reflects his ambitions for Deutsche Bank's investment banking arm. This time the bank is to be split into two distinct parts. On February 1, the corporate and investment banking arms - GCI, corporate and real estate, custody, and cash management - were brought together. They will be known collectively as the Corporate and Institutional Client Group (CICG). The asset management, and private and retail banking arms will form the second division.
The bank says that its focus at present is on finalising and fine-tuning the restructuring process - some of the details of which have yet to be decided - and not on finding a replacement for Mitchell. For the time being, Ackermann, described by bank insiders as a strong and respected leader, will assume responsibility for Mitchell's work. Given that he, too, has been instrumental in redefining Deutsche, some analysts believe that he will defend its continued implementation on the Vorstand.
Fiona Swaffield, a banking analyst at Lehman Brothers who covers German and Nordic banks says: "Deutsche Bank has transformed itself from a corporate bank into an investment bank. It will probably wait until an heir apparent emerges, which may not be before 2002 when Ackermann replaces [Rolf] Breuer. There's less of a risk in not bringing someone in at the top straightaway."
Others are more sceptical, saying that the new corporate and investment banking arm will be left with many rulers of business lines but no clear leader. Though the bank denies that this will happen, any jostling for power could create some nasty internal politics.
Alternatively, Ackermann may seek to replace Mitchell from outside the bank. But this could also cause friction given that most of Mitchell's protégés, arguably the best candidates for the job, are already Deutsche Bank employees. Among them are Grant Kvalheim, head of debt capital markets, Anshu Jain, newly appointed head of the global markets division, and Tom Gahan, head of credit products, who will also become head of the new loan products and leveraged finance unit. All of them were recruited by Mitchell from Merrill Lynch.
Another hotly tipped favourite for the job is Michael Philipp, who also came to Deutsche from Merrill with Mitchell and was appointed to the Vorstand alongside him last summer. Philipp used to run Deutsche Bank's equity business, before becoming head of the asset management division.
"Finding a replacement for Ackermann when he becomes spokesman of the board isn't urgent right now, but someone will have to step into his shoes," says a Deutsche source. "The bank will have to start looking at this in the not too distant future, otherwise it could have a problem."
Ackermann will certainly need to find a replacement for himself before he becomes chairman of Deutsche Bank, which is expected to happen in May 2002. Mitchell had been the obvious choice as Ackermann's fellow architect in the rebuilding of the bank, with Philipp following closely behind. That Mitchell helped scupper Deutsche's merger with Dresdner, and was appointed to the Vorstand shortly afterwards, suggests that he may have been viewed as Deutsche's saviour.
It was always difficult for journalists and outsiders to comprehend the Mitchell myth. He came across as rather ordinary, but clearly inspired his own troops. Many managers have been given an open cheque book and told to build a world class investment bank. Mitchell was almost alone in carrying it off. What he built is bigger than one man. Mitchell himself discovered this when preparing to quit for SBC Warburg in 1998. He was surprised to find key members of his team determined to stay at Deutsche rather than follow him. They talked him into staying. Now they must preserve his legacy.