The year had hardly begun, but it was already clear to Deutsche Bank's top management that things would be different in 2015 than in previous years.
For one thing, an extended Christmas vacation was interrupted by a two-day strategy meeting in early January.
Anshu Jain and Jürgen Fitschen, the bank's two co-chief executives, insisted on getting together with their six fellow management board members to map out the future of Germany's largest bank.
The heads of group and corporate strategy, Fabrizio Campelli and Christiana Riley, also attended the meeting at the bank's London headquarters on Winchester Street.
In the shadow of the bank towers in London's financial district, the powerful group of executives discussed fundamental issues relating to the bank's future business model.
How do we handle our customers? In which markets do we need to have a presence? What are the growth expectations for the next decade? How can we become more profitable?
The London crisis meeting failed to produce any breakthroughs, but more meetings have already been scheduled. There isn't much time left, since the two co-chief executives want to be able to announce a decision on Deutsche Bank's new direction by May.
Mr. Jain, in particular, wants to take the venerable Frankfurt-based financial institution in a new direction, in what could very well prove to be his most important battle as a banker – and undoubtedly his biggest challenge at Deutsche Bank.
After half of his tenure as co-CEO of Germany's largest lender, Mr. Jain has yet to prove that he can lead the bank into a successful future. A banker with a track record of success, who turned practically anything he touched into cash while working as a London investment banker for almost two decades, has had many plans for Deutsche Bank but has failed to deliver so far in most cases.
The Midas touch, the sense that he could succeed at anything he tackled, is gone, some say.
Hardly any other CEO of a global bank has had to explain so much negative news in the last two years as Mr. Jain. The bank's share is among the biggest losers on the German DAX Index and its return on equity ranks at the lower end among international competitors.
To make matters worse, the bank’s confidence has taken a hit amid investigations into alleged scandals involving manipulated interest rates and foreign currencies.
Although Deutsche Bank is not in need of a restructuring, it falls far short of its own performance standards and is less profitable than many of its peers. The self-confidence that distinguished one of Europe's largest banks since the 1950s has given way to self-doubt.
The murder of then-Deutsche Bank Chief Executive Alfred Herrenhausen a quarter century ago probably marked the last time there was this much uncertainty over the bank's future.
What Deutsche Bank lacks is the vision required for a business model that will be successful in the long term. "The current strategy has not taken structural changes in the industry into account," said James Chappell, an analyst with Berenberg Bank.
Mr. Jain and his fellow board members long felt that such changes were unnecessary, so it was no surprise that there was not a single strategic change in their "Strategy 2015+."
Instead, Mr. Jain and Mr. Fitschen announced a program to cut billions in costs, improvements in the bank's capital resources and "deep-seated cultural change."
In contrast to the competition, such as Swiss UBS and Britain's Barclays, which made noticeable corrections to their business models in reaction to the global financial crisis, overhauled their investment banking operations and returned to traditional core businesses, things remained more or less unchanged at Deutsche Bank.
The executives in the bank's Frankfurt twin towers had apparently internalized former Chancellor Gerhard Schröder's campaign slogan: "We don't want to change everything, just improve many things."
The slogan won Mr. Schröder the chancellorship, but put Deutsche Bank on a back burner.
In one of his first interviews as chief executive, a confident Mr. Jain said that the bank faced "significant challenges, as well as great opportunities."
He predicted that consolidation in the industry would "greatly benefit" his institution, because the environment affected rivals equally and his bank was "in relatively good shape."
It is clear today that "Deutsche" is actually in relatively bad shape. Increasingly rigid requirements by regulators and lawmakers are complicating the investment banking business, and rivals like JP Morgan have adapted to the new rules of the game more quickly.
An ultra-relaxed monetary policy has pulverized margins in retail banking, and European competitors such as Spanish bank Santander are beating a retreat. Although Deutsche Bank has made some progress in investment management, it still lags far behind market leaders like UBS.
The share price reflects the extent of the malaise, having declined by more than 30 percent in 2014 alone. The bank's market capitalization is now significantly lower than its book value. If shareholders and politicians could have issued a vote of no confidence against the leadership, this was it.
The bank is apparently having so much trouble coping in its new environment that it had to content itself with profits of less than €2 billion, or $2.3 billion, a tenth of JP Morgan's profits. Today's return on equity of less than 3 percent falls far short of the 12 percent Mr. Jain aims to achieve in 2015.
There is an enormous gap between desire and reality at Deutsche Bank, more so than with almost any other global bank. This is ironic, because Mr. Jain's and Mr. Fitschen's primary goal was to emerge from the shadow of predecessor Josef Ackermann and lead the bank into a new, illustrious era.
Now the duo run the risk of constantly being reminded of the golden days before the financial crisis, when the bank was reporting record profits.The permanent disappointment of self-imposed expectations has already triggered a rethinking on the bank's executive floor.
Mr. Jain, in particular, has become increasingly self-critical. In confidential conversations with members of his inner circle in recent weeks, the banker, once spoiled by success, has repeatedly admitted that not everything has gone well in the past.
"We made mistakes, and we will draw the necessary consequences," he has reportedly said.
Mr. Jain and his team are focused on developing a lasting vision for the bank for the next few years.
Confidantes who know him well say Mr. Jain has become more introspective and determined – but also more isolated. He intends to win the battle for the future of Deutsche Bank, and learn from past mistakes – of which there are many, they said.
After half of his tenure as co-CEO of Germany's largest lender, Mr. Jain has yet to prove that he can lead the bank into a successful future.
Underestimating the Regulators
The glamor has dissipated. In the past, investment banker Stephan Leithner was a key player when it came to mergers and acquisitions in London and other financial hubs.
But on this cold day in mid-January, he is walking down a bare hallway in the Bonn headquarters of Germany's financial regulatory agency, staring straight ahead – a walk he has taken many times in the last two years.
Instead of putting together brilliant takeover deals, Mr. Leithner, now in charge of legal affairs at Deutsche Bank, spends his days grappling with exacting regulators and a long list of 6,000 legal disputes.
Since Mr. Jain came into office, the bank has been overrun by a massive wave of stricter regulations, lawsuits and regulatory investigations. "The regulation came down on the banks like an elemental force," said Hans-Peter Burghof, a professor of banking and finance at the University of Hohenheim.
The legal problems alone – from the scandal surrounding manipulation of benchmark interest rates to lawsuits over dodgy mortgage deals in the United States – have cost the bank €6.7 billion since Mr. Jain became co-CEO.
"You can hardly have a conversation with a customer without hearing criticism relating to the scandals. We are in a quagmire," said one top manager.
The list of new requirements is long. Among other things, the banks must have more equity available, reduce indebtedness, widely abandon proprietary trading, and spend more monitoring transactions.
From Mr. Jain’s point of view, these unforeseen events were not predictable, so his strategy of continuing the status quo was thus justified. “The regulatory field has developed in a direction that no one could have predicted,” said sources close to him.
But that is only half the truth.
“Deutsche Bank, unlike some of its competitors, completely underestimated how tightly the regulators would twist the screws,” said a top investor.
Axel Weber, the former president of the Bundesbank, shows that things also could have been different.
While Mr. Jain still hoped the tide of regulation would quickly wane, the new UBS chairman bet on the opposite happening. The radical cuts in the giant Swiss bank’s investment banking forced by him in 2012 were due to his insight that oversight authorities would drastically tighten the debt ratio.
Likewise, UBS was quicker to account for its own trading scandals and instead of using piecemeal tactics, strove for quick settlements with authorities, even though there are setbacks such as U.S. investigations into tax evasion.
But while UBS has long put the interest rate manipulation scandal behind it, Deutsche Bank is still waiting to settle with authorities.
In his dealings with financial overseers, Mr. Jain at Deutsche Bank must now experience how powerless a once-mighty financial institution can be.
For the quick-witted bank executive, who grew up in New Delhi and became a top manager in New York and London, there are hardly any moments worse than those which he cannot influence.
What remains is the hope that at least this year, one settlement or another will be offered by the authorities. Mr. Jain is waiting for that more than anything else. “A clean break from the many scandals would be a new beginning for Jain,” said a close confidante of Mr. Jain’s.
The Neglected Shareholder
Davos was a balm for his soul.
When Mr. Jain caught sight of Larry Fink at a reception on the sidelines of the World Economic Forum last month in the Swiss Alps, the two friends for decades greeted each other with a warm hug. Mr. Fink is the head of BlackRock, the global asset manager, and the third-largest shareholder in Deutsche Bank.
But the gesture among old friends was partly deceptive: There is probably no major shareholder who is satisfied with their investment in Deutsche Bank since Mr. Jain and Mr. Fitschen took over.
The balance sheet is devastating.
While the global bank index has risen by almost a fifth in the past two and a half years, the Deutsche Bank share price has suffered.
And while U.S. banks pleased shareholders with special dividends, the dividends of the Frankfurt bank have remained at a measly €0.75 per share.
The market appraisal of Deutsche Bank at 70 percent of the bank’s book value suggests that shareholders either do not trust the assets of the bank or see more value in divestiture.
Mr. Jain’s demand was a much different one.
“We are called upon by our supervisory board to increase the value of the bank over the long-term,” he said in June 2012.
But increasing shareholder value had to take a back seat because of stricter regulation and because a bank had alarmingly little capital to meet its goals.
Since then, much has been done.
Mr. Jain reduced the balance sheet by €500 billion – the equivalent of a Commerzbank, Germany’s No. 2 bank – and in doing so lowered indebtedness. The equity ratio rose from 5.8 percent when Mr. Jain took over to a considerable 11.7 percent.
While U.S. banks have pleased shareholders with special dividends, the dividends of the Frankfurt bank have remained at a measly €0.75 per share.
But along the way, Mr. Jain lost credibility. In June 2012, the word still was: “We are strongly capitalized. We are very confident that we will fulfill the capital requirements… on our own,” he had said.
Not a year later came a capital increase of almost €3 billion, and Mr. Jain’s assertion that the “hunger march” was over. But just a year later came the second capital increase, this one for €8 billion.
“His reputation suffered, because the difference between his words and deeds simply got too big,” said a major shareholder who declined to be named. “It had almost become a farce.”
Mr. Jain knows the criticism, and has drawn conclusions from it.
After dealing with the many inherited liabilities, Deutsche Bank’s shareholders should now truly be first in line.
“So far, we could not afford to, but now shareholder value will be our first priority,” Mr. Jain has said, communicating the new strategy.
The Wrong Friends
In the small northern German city of Stade, the bank cashier’s eyes widened. She could not believe who was calmly waiting in line at her counter: Her top bosses. As Mr. Jain and called on co-CEO Mr. Fitschen in his hometown last year, they made a spontaneous visit to a local Deutsche Bank branch.
It remains an open question whether or not the cashier and the former trader had much to say to each other. Many insiders think Mr. Jain has had a difficult time understanding the details of the divisions outside of investment banking.
“Jain shies from the DNA of the bank. That is the core problem and that was also the reason why Ackermann did not want him to be CEO,” said a high-ranking bank manager who declined to be named.
The problem is that Mr. Jain surrounded himself with his peers from the beginning.
When he started, he put colleagues from investment banking in key positions on the Group Executive Committee, the level under the top management board. Among them are Michele Faissola, who directs the increasingly important asset management division, and Colin Fan, who leads the investment bank.
Known as “Anshu’s army,” the level of oversight was meant to help push through key changes, but has been unable to significantly correct the bank’s biggest challenges.
“That has led to operational blindness,” said a major shareholder. “Of all the major banks, Deutsche Bank has changed the least since the financial crisis. That shows how much group think is ruling at the top.”
No one is expecting a replay of culture wars between traders and private client bankers.
But the power in Deutsche Bank clearly lies at the moment with Mr. Jain’s investment banking troops.
The head of private and business clients, Rainer Neske, is largely isolated, observers said. That is even though the private client business, with 38,000 employees, is almost five times as large as the investment bank.
Two members on the executive committee have no experience in private clients.
“In the future, we will see more people from the private and business clients business in the GEC again,” said a supervisory board member, who declined to be named.
Mr. Jain is always short on time.
But on a Friday morning in May 2014 he took a good hour to speak with more than 40 top German managers in the bank’s London office. The Who’s Who of German industry were there – Bayer, E.ON, Deutsche Telekom, Voith, Linde, RWE, BMW, and Dyckerhoff.
At issue were the effects of stricter regulations on the banking business, especially on lending.
Mr. Jain answered questions in detail and promised Deutche Bank would remain “a reliable partner” to business. Mr. Jain knows that since the outbreak of the financial crisis, global investment banking has been accused of doing too much business on its own account and pulling back from lending.
For some Deutsche Bank managers, it is not a problem that they must speak English with Mr. Jain, but it does hinder forming a closer relationship.
“The discussions would surely be more intensive, if the head of Deutsche Bank would also speak German,” said the chairman of a DAX company, who declined to be named.
Mr. Jain intended to learn about German culture and the German language.
But it remained largely a desire. His German today is worse than it was when he took the position, according to reporters who cover him in Frankfurt.
He cites his many appointments abroad for his poor German abilities. Critics claim that he has no real incentive to learn German, in places where one can speak English with most people.
That’s the case in London, where Mr. Jain had met many times with managers. He visited small to mid-sized businesses, association heads, and union representatives.
In order to understand the German economic model better, he had an appointment to meet five leading German economists at a five-star hotel in Berlin shortly before parliamentary elections in September 2013.
But he let himself be convinced by his partner Mr. Fitschen to go with his wife Geetika to an opera gala in Frankfurt instead.
Many have remained skeptical of Mr. Jain, especially in German government circles.
“He is respected, but no one really trusts him,” said a member of Chancellor Angela Merkel’s cabinet who has met him several times and did not want to be named.
Some critics say it is difficult to believe that Deutsche Bank’s former head of investment banking, Mr. Jain, did not know anything about the scandals now being investigated in his division.
The level of mistrust is especially strong among some Social Democrats, the junior partner in Ms. Merkel’s government, who would like to split up Deutsche Bank. The main contact person for Berlin politicians is Jürgen Fitschen, not Mr. Jain.
Mr. Jain has heard the concerns, and it annoys him that he has so far not been able to clear up the concerns in Berlin. He does not want to back down, and is fighting to build contacts in German politics. But he doesn’t entertain any illusions, and feels like a ”perpetual immigrant,’’ according to one confidante.
Mr. Jain ... is fighting to build contacts in German politics. But he doesn’t entertain any illusions, and feels like a ”perpetual immigrant,’’ according to one confidante.
Strategy, what strategy?
“I maintain that he is one of the most talented bankers of his generation,” said one investor.
Anshu Jain still has many admirers such as this top investor, and they include major shareholders of the bank. For a couple months, such sentences of praise have been followed with a “but.”
“The new leadership had waited far too long after the Ackermann era to develop a new focused business model,” complains another investor in the bank.
Mr. Jain knows that such complaints aren’t isolated.
The issue of strategy has long replaced legal risks as the largest concern among shareholders. But the criticism doesn’t just come from outside the bank. “Some say we have no strategy at all. 2015+ was actually always just meant to be a placeholder,” criticized a top manager at the bank.
In fact, when Mr. Jain and Mr. Fitschen took control of Deutsche Bank in 2012, they did complain about the inherited burdens that Josef Ackermann left them, but held to his vision too.
The new co-CEOs initiated a corporate cultural change and shrank the balance sheet by about a quarter, both major achievements. What remains is to establish Germany’s largest financial institution as a global investment bank with a strong private client business.
“Both of them first had to wait until they could more clearly see in which direction the regulation would develop, before they formulated their own strategy,” said a member of the supervisory board.
Some independent experts also come to their defense: “After all of the scandals, the new change of culture blocked many forces, and this project of Mr. Jain and Mr. Fitschen produced tremendous tension in the entire bank,” said the banking professor, Mr. Burghof.
Some shareholders are less patient.
“Jain long underestimated the restructuring in investment banking, a portion of the business will never return, and the leadership reacted too late to that,” warned an investor.
“And now it is apparent that the bank is actually hardly at the top anywhere,” complains another investor.
Some are fatalistic: “Only one thing is clear, and that is that something must change, no matter what.”
For years, a framed accolade Mr. Jain received for a triumphant victory 15 years ago at Deutsche Bank’s investment banking unit has hung on his office wall.
At the time, Deutsche Bank was named the largest currency trader in the world for the first time, surpassing Citigroup. It is a testimony to the rise of Deutsche Bank to the top league of the U.S.-dominated investment banking world.
But the award had to give way to something new on his wall, a jersey from the German soccer club Borussia Mönchengladbach, signed by its players.
The team’s sponsor is a Deutsche Bank subsidiary, Deutsche Postbank, that private clients’ bank now at the center of rumors of a possible sale. The sale would be welcomed by many investment bankers.
Regardless of whether or Postbank is sold or not, Mr. Jain also plans drastic cuts in other parts of the bank, including his beloved investment unit.
The soccer jersey represents Mr. Jain’s metamorphosis from trader to manager.
His priorities have shifted under the enormous pressure from dissatisfied shareholders and doubtful employees. For 32 months, he had to correct the bank’s capital weaknesses, combat market turbulence and cope with unprecedented waves of regulation.
For 32 months, he hasn’t read a single book, and has had little time for family and working out. Now he must see the full picture. Quick victories aren’t enough, and the bank needs long-term success. It thirsts for respect. And it wants to survive in the top league of the financial industry, and not to simply be another second-tier player, like Commerzbank or Société Générale.
Anshu Jain knows now that he has to nail it. It might be his last shot, so it better be a good one. Otherwise, he might lose the already tarnished trust of shareholders and employees.
Everyone is looking to the lone wolf at the top of the bank, to the career investment banker for a clear-cut strategy to lead them to 2020 – when Deutsche Bank celebrates its 150th anniversary.
It’s a key inflexion point for the institution, much like the groundbreaking decisions of the 1990s that built a global investment bank.
“We are asking Deutsche Bank to be as radical as possible,” said Mr. Chappell, the Berenberg analyst.
So far, Anshu Jain and his followers are putting the bank under the microscope in two-day executive meetings. It’s a massive undertaking. Under the leadership of Stefan Krause, the finance chief turned head of strategy, the bank is undergoing the equivalent of a financial MRI exam.
More than 100 interfaces between clients and products are being scrutinized, the global competition in each field of business is being assessed as well as the potential for growth.
One question guides the investigators: Does the model of a global universal bank, covering all banking services from trading in government bonds to salary accounts, have a future?
At least in its current form, that doesn’t seem likely.
“We stand by our business model, but it doesn’t do justice to shareholders,” sources close to the supervisory board said. “We love this model, but unfortunately it doesn’t work this way,” they added.
Mr. Jain plan to restore Germany’s largest bank to its former stature is starting to take shape – but will only be realized if he prevails in the management board.
One of the cornerstones of the plan is to not cap deep, thick roots in Germany.
At home, the bank will still offer a broad spectrum of products for as many target groups as possible.
“We want to continue dominating the German market,” said a top manager.That doesn’t necessarily exclude a partial sale or flotation of Postbank.
A cornerstone of the plan is to not cap deep, thick roots in Germany. At home, the bank still plans to offer a broad spectrum of products.
That doesn’t necessarily exclude a partial sale or flotation of Postbank.
But Deutsche Bank will not likely shed its entire retail banking division, even as it invests more in digitalization and cuts costs.
At the same time, Mr. Jain wants to prune the global business.That includes unprofitable parts of its investment banking operations.
“What we demand is a credible plan to make investment banking more profitable – everything else are only accessories,” said one major investor, who declined to be named.
No one is challenging the European investment bank’s strong presence in the United States and Asia.
But Mr. Jain wants to cut costs and to withdraw from some countries.
“We are active in more (geographical) markets and offer more products than we should. We have grown too spontaneously and too fast,” says one insider at the bank. “There are markets where we offer good services and have happy customers, but don’t make money. That has to change,” the source added.
The bank is supposed to become a global premium provider, the financial market-equivalent to German export successes such as BMW or Daimler.
“Maybe Deutsche Bank should have the courage to stick to its particular business model and try to sell ‘banking made in Germany’ internationally,” said professor Burghof of University of Hohenheim. “That would, however, not mean that nothing changes. On the one hand, the bank would need to considerably cut costs, while on the other hand investing heavily to expand its presence in Europe.”
There is no way around multi-billion-euro cost cuts and merging some operations, insiders said.
Mr. Jain and his supporters – rather surprisingly – are getting ready to cut.
They are targeting the asset management division. In this stable and until very recently lucrative field, the bank has grown rapidly under Mr. Jain and Mr. Fitschen, entering the global top 10.
Management wants to join the top 5, and might acquire other firms for the first time in years.
One thing is clear, namely that Mr. Jain’s professional future is tied to the outcome of this strategy.
The new course will be evaluated a year from now. That will help answer the question what the leadership will look like starting April 2017.
So far, the head of Deutsche Bank’s supervisory board, Paul Achleitner, leaves no doubt that Mr. Jain’s contract will be renewed.
It remains unclear, however, who will follow Mr. Fitschen.
Within Deutsche Bank, two people are considered candidates – current finance chief Stefan Krause, and future finance chief, Marcus Schenck. It seems a done deal that Mr. Jain won’t be heading the bank by himself.
He told Handelsblatt that he is convinced “that the co-CEO model suits Deutsche Bank’s requirements best.”
That’s also part of the evolution of the former investment banker. He increasingly sees himself as part of a team, the times of the investment banker with the mega-ego are said to be over.
One of Mr. Jain’s new role models is Jogi Löw. The banker admires how the German national soccer coach has built a team with passion and discipline – a team that won the World Championship.
Anshu Jain is also longing for similar recognition. But Deutsche Bank is still a far cry from the global finals, and Mr. Jain’s ultimate career goal, until then, will remain unfulfilled.