Final curtain call

Josef Ackermann’s tenure at Deutsche Bank is over. The board’s faith in him was testing, but he received a standing ovation as he left

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Having endured his fair share of media criticism during his tenure at Deutsche Bank, Josef Ackermann unknowingly put himself in the firing line when he invited questions at a school in Germany in 2008. “Why does the government have to pay for the mistakes of the banks, and not the bank chiefs?” asked one teen. “The crisis is your fault.”

Ackermann has long been denounced as Germany’s ‘bogeyman’. In a 2008 reader’s poll in Der Speigel, only five percent said they believed he was committed to promoting the country’s social welfare, while 87 percent said he acts purely in the interest of his bank and its stockholders. “He earned €14m in 2007, at a time when governments were spending billions in taxpayer money to bail out the banks,” it said. “His decision to forego some of his bonus that year was seen as purely for show by some critics.”

The financial crisis and the ramifications of his work during that time have caught up with Ackermann bit by bit. Deutsche Bank has been forced to write off billions in bad loans, even though its losses were not as severe as those of many of its competitors. Ackermann repeatedly insisted there was no systematic disaster, even in the midst of the tumultuous years that followed the initial folding of Lehman Brothers. He has found it difficult to shake off suggestions that he was the main culprit in misleading investors about the quality of subprime mortgages, said to have led to the collapse of the US bank. Deutsche Bank had bought mortgage lending outfits in 2006, and was consequently investigated by the 2011 mortgage securitisation probe launched by the New York Attorney General.  “I saw most things correctly,” he said recently. “I did not expect, however, that Lehmans would be allowed to go under. That was not foreseeable, and it changed everything.”

In early 2008, Ackermann was at the centre of more power circles than any other banker on the continent, and his relationship with German chancellor Angela Merkel was in pretty good shape. But by October, after the government was forced to rush through a €500bn bailout package to rescue the banks, the relationship had soured, according to Businessweek writer Armin Mahler. “Merkel couldn’t comprehend why Ackermann distanced himself from the package itself – a plan which he himself helped to put together, and stressed publicly, the importance of,” he said.

Josef Ackermann with Angela Merkel before their professional relationship soured

In his final year at the bank, Ackermann believed providing debt relief for Greece would be a huge mistake, and pushed past any of the bank’s good work far into the background. He was holding billions of euros in Greek government bonds, and he maintained banks would lose big if those debts were resurrected. This attitude was in stark contrast to his 2008 pledge of €8.5bn to the German government, just when they needed it the most, and his critics denounced him as only having Germany’s interests at heart, rather than those of the eurozone, despite his own insistence that Deutsche Bank should play a major role in international banking as far back as the beginning of his career as CEO.

For many, Ackermann is the living embodiment of the insatiability of the banking world. His €6.3m salary in 2011 was not particularly ostentatious compared to the leaders of other big banks, but he has been the highest-paid chief executive in Germany in recent years, becoming a living representation of corporate voracity. For others, he is the resilient and consoling captain who steered Deutsche Bank successfully through the 2008 global economic and financial crisis without major losses. He’s also widely respected by many as the man who transformed the institution into a true global player during his 10 years in office, where previously it had been a mere national participant.

Starting out
It all began so well. After graduating with a doctorate in economics from the University of St Gallen in 1977, Ackermann joined Credit Suisse in New York, as the assistant to the general board of directors. By the time he was 33, he was in charge of three hundred employees, and promoted to general director in 1990 after a stretch spent in Zurich, Lausanne and London. Three years later, he became president of the executive board, and oversaw the successful merger of the Swiss Volksbank that same year.

Ackermann demonstrated a specific preference for a shareholder-focused management style, whereas CEO Rainer Gut favoured a more traditional approach, and consequently they often disagreed on strategy. Their altercations raged most heavily throughout 1996, when they were deciding what to do with Volksbank. “Gut wanted to merge its business operations into credit operations, but Ackermann sought to keep the business units separate,” wrote Maike van Wijk. Risk management consultant Lucas Wrysch believes Gut wanted the merger in order to fire thousands of bankers: “Ackermann was against such massive layoffs of older, more experienced bankers and resigned.”

Ackermann quickly made Deutsche Bank his home, on the board of directors and in charge of the investment banking division. He was on track to cement a credible reputation when he spearheaded the merger of the US-based Bankers Trust in 1998. By the end of 1999, he had bolstered his position in the company further when his control of the global operations and institutions department managed to generate 60 percent of the bank’s revenues that year.

In the spring of 2000, he vetoed a merger with Dresdner Bank after insisting the deal could go ahead only if the now-defunct Dresdner Kleinwort Benson investment bank was sold. In spite of serious pressure from his colleagues to approve the deal, Ackermann was resolute. He eventually earned a promotion, and served as CEO designate for almost two years before his formal appointment to the role in May 2002, becoming the first non-German to run the bank.

As CEO, Ackermann needed to turn around Deutsche Bank’s fortunes from run-of-the-mill lender to attractive global competitor. Roughly 18 percent of the workforce was laid off very soon after his appointment, and effective cost-saving measures were put in place. He outsourced the management of the bank’s real estate and computer systems, closed a number of retail branches, and sold close to €11bn worth of non-strategic assets, including poor performing ones like the company’s stake in the reinsurance firm Munich Re. He merged Deutsche Bank’s previous five separate operating divisions into two in order to reduce overlap and encourage cross-selling between existing investors, sold retail bank branches in France and began looking towards expunging others in Spain and Italy. Revenue from corporate and investment banking had surged from €4.8bn to €14.3bn by this time, and Ackermann was keen to help himself to a large piece of the pie.

His management style, which had clashed so spectacularly with Gut, was now taking centre-stage. In order to modernise Deutsche Bank, Ackermann created an internal shift from commercial retail banking as the primary focus to securities trading and asset management business. He also founded a new 11-member group executive committee, and appointed Germany’s deputy finance minister, Caio Koch-Weser, as its vice chairman. The bank’s net income quickly rose 85 percent to €929m in the first nine months of 2003, a huge increase from €397m the previous year, becoming the seventh-largest bank in the world that year in terms of revenue and the world’s fourth-largest money manager overall.

The moves and massive surge in profits were initially viewed as notable changes by his peers; former Volkswagen CEO Carl Hahn said: “Ackermann modernised Deutsche Bank in a most impressive way,” and Rolf Zartner, a Frankfurt-based fund manager at Deka Investment, said: “Deutsche Bank used to be very inefficient, with a huge loan book and poor cost controls. He cleaned up the investment portfolio; he streamlined the business and sold assets the bank didn’t need.”

However, there were many concerns that Ackermann had achieved global banker status too quickly. “His acts resulted in a huge amount of criticism from traditionalists,” said Van Wijk. “But he received praise from those who shared his global vision, allowing him to become the most powerful man in Germany’s financial industry.”

Courting controversy

Demonstrators gather outside Deutsche Bank in Frankfurt

At the beginning of the Mannesmann trial in January 2004, he was brought in to look into alleged wrongdoings in the 2000 Vodafone takeover of the company, Ackermann said: “Germany is the only country where those who are successful and create value are put on trial for their troubles.” That quote, along with a photograph of him flashing a victory sign on the first day of the hearings, has, according to Mahler, “haunted Ackermann to this day,” after landing him in hot water with the media. “Ackermann could not, and cannot, to this day, understand why he faced charges for having approved millions in bonuses to executives,” he said. “He announced such golden parachutes were common practice the world over.”

One gaffe led to another a few years later; when Ackermann was asked his opinion on why there weren’t many women executives serving on German boards, he replied he hoped Deutsche Bank’s executive committee would one day be “much more colourful, and prettier too,” sparking anger among a number of his critics. “If Mr Ackermann wants more colour on the board, he should hang some paintings on the wall,” retorted member of the European parliament Silvana Koch-Mehrin.

In 2009, Ackermann came under further fire as Deutsche Bank admitted to spying on its critics and a previous member of its supervisory board, after an investigation by Der Speigel exposed it as having hired investigators to keep an eye on its employees. The Wall Street Journal reported that the bank had also prepared a list of 20 names it wished to monitor, and that “incidents had dated as far back as 1998.” The bank has also been criticised for investing in firms producing cluster mines and bombs that had been banned by international treaties, although Ackermann has said that he had “terminated our business relations with companies who, even indirectly, are involved in the manufacture of cluster munitions”.

Ackermann and a courtroom just couldn’t keep away from one another. In May 2011, the CEO turned up in Munich to testify in a lawsuit brought against Deutsche Bank by the German media mogul Leo Kirch, alleging Ackermann questioned the validity of his company’s credit and triggered its collapse. At the time, Economy Watch suggested that Ackermann was “the most dangerous banker in the world.”

After Ackermann
His final curtain call at Deutsche Bank’s was at the annual shareholders meeting in Frankfurt in May, where Ackermann amassed a combination of both applause and catcalls from his peers. During his tenure, the bank’s stock has ridden what the New York Times has dubbed a ‘financial rollercoaster’, where shares were seen to peak at over €100 in 2007, but fell below €20 in 2009. The day Ackermann resigned, they closed at €29.09. Although he fell short of reaching his goal of annual profits by 25 percent, which he had promised at the beginning of his career at the bank in 2002, he told shareholders: “Deutsche Bank has become a globally competitive and highly profitable financial institution which has proved its extraordinary resilience.”

However, a number of analysts believe Ackermann leaves Deutsche Bank’s reputation far worse off. Bloomberg said he resigns himself to the title of the “world’s most polarised banker, facing a political and public backlash, a broken model of low capital, high leverage and over $2trn in losses,” and the Daily Bell said: “From a free-market standpoint, the bank is just another fiat-money, paper shuffling entity that would have gone bankrupt in 2008 without the emergency assistance of tens of trillions of dollars that central banks distributed digitally to try to unfreeze the world’s economic system.”

Ackermann will remain on the boards of Seimens, Shell and Sweden’s Wallenberg family Investor (Investor AB), as well as making time for his new role as chairman of the Zurich Insurance Group AG (ZURN). He will not, however, be taking the same position at Deutsche Bank, despite it being something of a tradition for former CEOs. The New York Times commented his decision came “on the same day reports in Munich said officials had searched the executive offices of Deutsche Bank on suspicion Ackermann and other current and former top executives had given false testimonies in a long-running civil lawsuit. Deutsche Bank denied any wrongdoing.”

Bowing out of his final shareholders meeting, he said: “I have done my duty and served the company with all my strength,” comments for which he received a standing ovation. He might have a few kind colleagues after all.