No doubt it has been a long and bitter day for Deutsche Bank’s top management.
At Thursday's annual general meeting, one shareholder after another took to the podium to air their frustrations with Anshu Jain and Jürgen Fitschen, the embattled leadership team of Germany’s largest bank.
“We are starting to ask ourselves whether the management of Deutsche Bank is really still in a situation to adequately lead this company,” said Ingo Speich of Union Investment, a fund manager based in Frankfurt. “Mr. Jain and Mr. Fitschen, when will this nightmare finally be over?”
Mr. Speich was hardly alone. At the end of Deutsche Bank’s annual meeting Thursday night, nearly 40 percent of its shareholders formally registered their disapproval with the bank’s direction. It marked a stunning rebuke in a country where 95 percent of shareholders typically back their company’s leaders.
Lucky for Mr. Jain and Mr. Fitschen, the only person who really mattered had already spoken. The co-chief executives who took charge of the bank in 2012 are staying – for now.
Paul Achleitner, chairman of the supervisory board that oversees the bank’s management, doubled down on his embattled chief executives just hours ahead of the start of Thursday's tense annual meeting in the bank's home city of Frankfurt.
The bank's policy-setting panel, which hires and fires top managers, agreed during a late-night meeting Wednesday to stay the course and concentrate power in Mr. Jain, who represents the bank internationally and spearheads its investment banking operations. Mr. Fitschen, who leads the bank's traditional commercial operations in Germany, will remain co-head with Mr. Jain.
The board meeting to discuss the bank's senior management had been called after some institutional investors demanded changes at the top, angered by the bank's struggles with costly lawsuits, record fines, and uncertainty over the effectiveness of its restructuring plans after years of sub-par profitability.
Mr. Achleitner, the former head of Goldman Sachs Germany and chief financial officer of Allianz, Germany's largest insurer, acknowledged the bank's reputation has been severely damaged over the past few years. But he urged investors not to rush to judgment – and pledged to keep a close eye on his managers' progress in implementing a strategic overhaul of the bank in the coming weeks and months.
“We are not here to ostracize anyone, but are a body that you have elected which has to meet its legal and moral responsibilities to the best of its abilities,” Mr. Achleitner said Thursday.
His support may have been enough to keep Mr. Jain and Mr. Fitschen in the job, but it was hardly a ringing endorsement.
“One hundred percent support would have sounded more lasting,” Klaus Fleischer, a banking professor at the Munich University of Applied Sciences, told Handelsblatt Global Edition.
For their part, Mr. Jain and Mr. Fitschen were subjected to some isolated boos from the audience as they aggressively defended their plans in opening speeches at Thursday’s shareholder meeting.
“In June I will have worked for Deutsche Bank for 20 years. I am proud to have served this great institution. With your support, I hope to position this bank even better,” Mr. Jain said.
Just 61 percent of the bank shareholders backed the bank's top management during a vote late Thursday. While that level of dissatisfaction was not enough to oust the bank's top managers, it is extremely unusual in Germany, where managers are usually reaffirmed with a very high proportion of shareholder votes.
"Are you the problem for this bank, or the solution, or both?" asked Markus Kienle, a Frankfurt-based lawyer, pointing to Mr. Jain. Mr. Kienle spoke at Thursday's meeting as a representative of some Deutsche Bank shareholders.
Mr. Jain and Mr. Fitschen took over the helm of Deutsche Bank in May 2012, but have failed to deliver the level of profits they initially promised, as the institution has slipped behind many of their global peers in the post-crisis era.
Deutsche’s share price, which has lagged well below its book value for much of Mr. Jain and Mr. Fitschen’s time in office – a measure reflecting market skepticism – held steady despite the barrage of criticism on Thursday, down just 0.5 percent at 12:00 central European time.
The supervisory board even offered additional powers to Mr. Jain. It placed him in charge of the new strategic overhaul the bank presented in April.
Anger from institutional investors uncharacteristically spilled into the public even before today's meeting. While the fiery speeches of smaller investors has become a matter of folklore at the bank's annual meetings, it was the fact that some major investors joined in the criticism that set this year's meeting apart.
Much of the concern focuses on a restructuring plan developed by Mr. Jain and Mr. Fitschen to sell off one of the bank's retail networks, Postbank, and to make other cuts in Deutsche Bank's retail and investment banking operations.
The plan, which trims but retains the bank's universal one-stop-shopping banking structure, a costly model abandoned by many of its larger, more profitable peers, has been criticized as being too modest and thus ultimately, ineffective, by some investors.
Vincent Vinatier of Axa Investment Managers, a shareholder, criticized the bank's overhaul as "a huge effort for such a small outcome." Another major investor, who declined to be named, said: "Confidence in Anshu Jain's ability to repair the bank has visibly melted away."
The toughest criticism came from Hermes EOS, a pension fund and shareholder advisory firm that represents 41 of Deutsche Bank's major shareholders.
"In our opinion, the development of Deutsche’s share price and the total shareholder return since Fitschen and Jain took over three years ago seem to reflect the failure of Strategy 2015+," Hermes said in a statement Wednesday, referring to the initial three-year restructuring plan put in place by the co-CEOs.
Mr. Fleischer, the banking professor from Munich, said one of the biggest problem for investors has been the lack of detail. While the bank may have released the outlines of its new strategy in April, it has said it won’t be able to deliver the specifics until July.
“I would have expected from today’s annual meeting program a series of highlights, with facts laid out on the table detailing how the trust can be won back and above all how profitability can be improved,” Mr. Fleischer said. “On the outside, all this simply doesn’t come across as conclusive and credible enough.”
Providing the details will now be up to Mr. Jain. Rather than heeding the calls for bold management changes, Deutsche Bank's supervisory board on Wednesday night vested Mr. Jain with additional powers. It placed him in charge of implementing the strategic overhaul.
Mr. Achleitner urged investors and those within the bank to stop looking backwards and to get behind the bank’s new strategy. Discussion over the bank’s future direction is over, he said. The course has been set.
“Technical market reactions and the disappointment of some individuals that there wasn’t a more radical solution, should not cloud the fundamental importance of this strategic shift,” he said.
Stefan Krause, the bank's chief financial officer who had been in charge of the overhaul until now, will instead take over as chairman of the bank's global transaction banking division and will steer the effort to spin off Postbank. Mr. Krause was already set to give up the CFO job to Marcus Schenk, who has been tipped as a possible successor to Mr. Jain and Mr. Fitschen.
In another change Wednesday night, Christian Sewing was named to replace Rainer Neske as head of the bank's slimmed-down retail operations. Mr. Neske has departed in protest at the new strategy, which saw his division suffer the brunt of the restructuring effort.
Mr. Jain, a dual Indian-U.K. national who previously ran the bank's investment banking operations, and Mr. Fitschen, a fixture of German banking who began his career at Deutsche Bank in 1987, had attempted to introduce a "cultural change'' at the bank since taking office in 2012.
In speeches to employees and the public, the two executives have argued the bank needed to atone for the excesses of some employees during the run-up to the 2008 financial crisis. But as long-term veterans of the bank, the two have ultimately had trouble disassociating themselves from actions committed by employees, often some they even supervised.
The investor dissatisfaction follows a rough month for the bank’s leadership.
Deutsche was handed a record $2.5 billion, or €2.2 billion, fine by U.S and U.K. regulators in April for its role in the Libor rate-fixing scandal, which focuses on actions from a time when Mr. Jain headed the investment banking operations.
Mr. Fitschen came again into the public eye this month when he and several former Deutsche Bank top executives began to defend themselves in a Munich courtroom against criminal allegations stemming from a 13-year-old bankruptcy case.
The men are accused of allegedly misleading investigators in the events surrounding the collapse of the media empire of Leo Kirch, a Munich mogul whose company filed for bankruptcy in 2002, shortly after the collapse of the dot.com market bubble.
Mr. Fitschen, a mid-level executive at the time of the Kirch bankruptcy, has denied that he colluded with his former bosses to bring about and profit from the bankruptcy of Kirch Media. In 2014, Deutsche Bank, without admitting guilt, agreed to pay €925 million to the heirs of Mr. Kirch, who died in 2011, to settle a civil suit. The ensuing criminal case, which opened earlier this month in Munich, is expected to run through the summer and will require repeated appearances by Mr. Fitschen.
Mr. Fitschen and Mr. Jain took over Germany's largest bank three years ago with high hopes and big promises. Aside from a cultural overhaul, together they promised a major restructuring of businesses to put the bank on a sustainable and profitable footing.
Mr. Jain is the first non-native German speaker to hold the top post, a reflection of the bank's aspirations to project a more global image.
Mr. Jain became the face of the bank in international circles, cultivating ties to London and Wall Street. Mr. Fitschen, a veteran of commercial banking born in a small town outside Hamburg, focused on the bank's traditional lending operations and kept close ties to investors and politicians in Berlin.
But the two simply failed to make enough progress to improve the bank's own financial performance. Despite some movements in the right direction over the last few years, the bank has fallen well short of delivering a clear path to sustainable profitability.
The bank’s overall profitability has been on an up-and-down roller coaster ride for much of Mr. Jain and Mr. Fitschen’s time in office. Deutsche posted net income of just €700 million in 2013. While they raised that to €1.7 billion in 2014, the bank's quarterly returns weakened in the second half of the year. The bank even posted a small loss in the July-September months.
For shareholders, the disappointment has been keenly felt in Deutsche Bank's share price, which has significantly lagged Germany's benchmark DAX Index over the last three years.
Christopher Cermak covers finance for the Handelsblatt Global Edition in Berlin. Daniel Schäfer, Michael Maisch, Michael Brächer and Laura de la Motte of Handelsblatt in Frankfurt contributed to this story. To contact the author: [email protected]
This story was updated throughout with details from Thursday's annual meeting at 22:00 Central European Time.