What has long been dreaded by Deutsche Bank this week became a reality.
Jürgen Fitschen, the bank’s co-chief executive, and four former management board members including former chief executives Josef Ackermann and Rolf Breuer, will stand trial in Munich to answer criminal charges they allegedly misled a German court about their role in the 2002 bankruptcy of a big client, the Kirch media group.
The trial of the five current and former board members of Deutsche Bank will begin on April 28 and run at least three months. Mr. Fitschen, Mr. Ackermann, Mr. Breuer and the other co-defendants will have to appear in the Munich court once a week until at least August 3, according to the court’s schedule.
The roots of the conflict go back to 2002 when Mr. Breuer, then chief executive, gave a television interview in Frankfurt questioning the solvency of the Kirch Media group, a Munich-based broadcaster that collapsed four months later. The late founder of the group, Leo Kirch, and his heirs said the banker's comments ruined the firm's reputation, accelerating its insolvency.
The criminal trial this summer marks the culmination of the 13-year legal battle between Deutsche Bank and the heirs of Mr. Kirch, who died in 2011. Last year, the heirs to Mr. Kirch received a €925 million ($1.1 billion) settlement from Deutsche Bank, and in exchange charges against the bank in a civil suit were dropped.
Prosecutors allege that Mr. Fitschen, who became the bank's co-chief executive in June 2012, misled the court in the civil trial by failing to contradict his former bosses and other colleagues when they said they had no intention to bring about the insolvency of the Kirch group.
Sources within the bank say that Mr. Fitschen, 66, who has long maintained his innocence, is determined to remain on as co-chief executive throughout the trial and sees no reason to resign.
His contract, with that of the other co-CEO, Anshu Jain, is set to run out in March 2017.
A firing of Mr. Fitschen at the current juncture is unlikely, said one source on the supervisory board.
“I do not think it is likely that Mr. Fitschen would step down,’’ said Friedrich Thiessen, the chairman of the banking department at the Technical University of Chemnitz. “For one thing, if the co-CEO of the bank would step down right after an allegation is made, that would also give the wrong impression, that he was guilty and running from an accusation.’’
Nor is the bank’s non-executive supervisory board, which has the power to hire and fire managers, considering forcing Mr. Fitschen from his post. The bank is confident Mr. Fitschen will be cleared of the charges, having already commissioned two legal opinions that suggested the charges are unfounded.
The removal of Mr. Fitschen is unlikely, said one source on the supervisory board who declined to be named, though he added the matter will certainly come up for discussion when the board meets on March 20.
Deutsche Bank’s share price was largely unchanged on Monday after Munich Judge Peter Noll agreed to allow a 627-page indictment filed against Mr. Fitschen and his co-defendants last September proceed to trial.
Still, the trial will not only test Mr. Fitschen’s legacy but is another blow to the reputation of Germany’s largest bank, which is facing a series of legal disputes in Germany and abroad, ranging from the alleged manipulation of market indices to evading economic sanctions imposed on financial institutions doing business with suspected terrorism supporters by the United States.
The trial comes as Deutsche Bank’s is pursing what may be the biggest restructuring in its history – a strategic shift that could see the bank cut as much as 30 percent of its business operations and sell its retail banking arm, Postbank. The results of the strategic overhaul are supposed to be announced around the same time as the trial is set to start in April.
Both Mr. Fitschen and Mr. Jain are under pressure to turn around the bank’s fortunes, after previous restructuring efforts have largely failed to improve profitability at the bank since taking the helm in June 2012. The bank’s share price has not risen noticeably in their three years in charge.
Yet the pending trial is unlikely to affect Deutsche Bank’s bottom line. Observers said that investors’ attention is more focused on other pending litigation where Deutsche Bank itself could face a much stiffer legal penalty, especially in the United States. The bank has already had to set aside legal provisions of more than €3 billion.
One investor in London suggested the relatively low international profile of Mr. Fitschen may also have something to do with the muted reaction to the trial news abroad.
Mr. Fitschen, born in a town near Hamburg in northern Germany, is responsible for the bank’s traditional commercial operations. His co-CEO Mr. Jain is in charge of investment banking and typically handles appearances on Deutsche Bank’s behalf outside the country.
The uneasy truce that has held at the top of the bank that could also help Mr. Fitschen keep his job. Hans-Peter Burghof, a banking professor at the University of Hohenheim, said the supervisory board does not want to rattle the chains at the top unless it absolutely has to.
“There is a fragile balance between investment banking and the Deutsche Bank of old,” Mr. Burghof told the Handelsblatt Global Edition.
In addition, the fact that Deutsche Bank has a shared executive role should also allow Mr. Fitschen the room to clear himself of the charges without impacting the day-to-day running of the bank, because Mr. Jain can pick up some of the slack when his partner has to appear before court.
“One can certainly pass one or the other task over if necessary,” said one observer, who declined to be named.
At the center of the legal trial is Mr. Breuer, the former chief executive of Deutsche Bank, who in a Bloomberg interview in 2002 questioned the creditworthiness of Kirch Media. Mr. Kirch promptly sued for damages after his company collapsed four months later, accusing the bank of forcing it into bankruptcy to profit from picking up the pieces.
Deutsche Bank has long maintained it played no part in forcing Kirch into bankruptcy, but the settlement of civil charges in 2014 prompted prosecutors in Munich to begin compiling a criminal case against the bank. In September, they accused management of colluding to defraud Kirch in the civil trial that preceded the settlement.
The prosecutors’ case could well be stronger against the former managers than against Mr. Fitschen himself, observers said. While Mr. Fitschen’s was a member of the management board in early 2002, he says he has no clear memory of any meetings involving Kirch that took place at that time.
He also departed the management board later that year to head a new “Group Executive Committee” that was set up to deal with the bank’s expansion internationally, and therefore had little to do with Kirch again until he was made co-CEO in 2012. Unlike the former managers, Mr. Fitschen is not charged with lying on the witness stand, but rather with failing to direct his bank's lawyers to correct any false statements that were made.
Mr. Fitschen himself has consistently maintained his innocence, repeatedly saying that he “neither lied nor cheated” in testimony before the court. Given that insistence, Mr. Burghof said it would send an ominous message to future managers if the supervisory board were to rid itself of Mr. Fitschen at this point in time.
Mr. Thiessen of Chemnitz Technical University, whose 2014 book, “Opportunism in the Financial Markets,’’ examined financial misdeeds in the banking sector in Germany and elsewhere, said the case against Mr. Fitschen appeared to be relatively thin.
“I have researched many cases involving financial impropriety where journalists and others have brought a lot of the evidence to light,’’ Mr. Thiessen said. “In this case, nothing has come to light and one has to treat the situation with a degree of skepticism.’’
The lawsuit against Mr. Fitschen is certainly not helpful to Deutsche Bank, which has been repeatedly sued by regulators and former customers in the wake of the 2008 financial meltdown. But the bank is likely to stand by Mr. Fitschen, Mr. Thiessen said.
Christopher Cermak is an editor with Handelsblatt Global Edition, covering economics and finance. Kevin O'Brien is the editor in chief of Handelsblatt Global Edition. Michael Maisch is the associate chief of Handelsblatt's finance desk in Frankfurt am Main. Laura De La Motte is an editor at the Handelsblatt finance desk and a specialist banking correspondent. Kerstin Leitel covers banks and insurance companies. Peter Köhler heads Handelsblatt's banking team in Frankfurt. To contact the authors: [email protected], [email protected], [email protected], [email protected], [email protected], [email protected]