It’s a trend spreading across Germany this year. Shareholders are speaking up, forcing cuts to executive bonuses and demanding strategic changes in direction. Germany’s ailing flagship bank hasn’t been immune to the shareholder pressure over the years – just ask its former chief executive Anshu Jain who resigned after a rather turbulent annual meeting two years ago – but there has been one key difference: For years, the disparity of Deutsche’s investor base – more than 500,000 people own shares – has meant that no single shareholder has held too much sway over the bank.
That is about to change. Two major shareholders have been given extra clout. Chinese conglomerate HNA, which became an owner earlier this year, and the royal family of Qatar have each won seats on Deutsche Bank’s non-executive supervisory board on Thursday. It marks the first time shareholders have been given a seat at the table since German insurer Allianz held a stake of about 5 percent back in the 1990s.
For a bank in the middle of one of the biggest reboots in its history, this is a big deal. Supervisory boards in Germany have the power to hire and fire executives and approve their longer-term strategies. Deutsche Bank in a statement Thursday insisted it is still business as usual: "It’s completely normal for investors with a stake of about 10 percent to request a seat on the supervisory board." But some of the bank’s other major shareholders don’t find it normal at all.
The bank is moving towards greater dependence on its new anchor shareholders. Ingo Speich, Union Investment
"A seat on the supervisory board gives major shareholders additional influence that goes beyond voting rights" at annual meetings, said Ingo Speich from German fund company Union Investment, another shareholder. He warned that "the bank is moving towards greater dependence on its new anchor shareholders."
Despite the misgivings, a majority of shareholders approved the appointments at the bank’s shareholders meeting. HNA, which owns just under 10 percent of Deutsche Bank, controls its stake through the Austrian asset management company C-Quadrat. It is the Austrian firm’s chief executive, Alexander Schütz, who is now set to join the supervisory board. The meeting also confirmed Stefan Simon, a lawyer who represents the royal family of Qatar, as a new member of the board. Mr. Simon had already joined the board following a court order. Qatar controls between 8 and 10 percent of shares through two holding companies
For other shareholders, the appointment raises some key questions. How will the new shareholders use their newfound influence on the board? Will they act in the interests of all owners, or simply in their own interests? Critics also want to know how much of an insight the new supervisory board members will gain into the bank's internal affairs – will they get an unfair advantage?
One influential shareholder, who declined to be named, said they intended to bring the matter up with the bank’s management. Hans-Christoph Hirt from the British investment consultancy Hermes was also among those who raised concerns at the bank's annual meeting Thursday. In principle, he said, there was no reason why large shareholders shouldn’t be represented on the supervisory board, but he suggested the two new members hadn’t been properly scrutinized like other board members in the past. Mr. Hirt called for a "robust screening process."
Smaller shareholders are also worried about the shift in power – and what the future could hold. Hans-Martin Buhlmann from Vereinigung Institutionelle Privatanleger, an association of institutional investors, asked whether there was a risk of a Deutsche Bank takeover by China. There have been no indications of this so far; on the contrary, sources in the financial sector say that HNA wants to keep its stake below 10 percent to avoid scrutiny by Germany's financial regulator, BaFin.
Still, many shareholders would like to know more about the intentions of Chen Feng, the Chinese billionaire behind HNA. The group has grown rapidly, is deeply in debt and has such a convoluted structure that even experts have difficulties working it out. It owns almost 20 airlines and is one of China's leading logistics and travel operators. There has recently been speculation about how close Mr. Chen and HNA are to the communist government in Beijing.
It was already clear that one person stood to benefit from the new set-up: Paul Achleitner, the bank’s supervisory board chairman, who on Thursday was re-elected to another five-year term. Both the Qataris and HNA have supported Mr. Achleitner, whose position at the helm once looked in serious doubt. With Deutsche Bank’s shares reaching an all-time low in September, some of the bank’s major shareholders wanted to hold the 60-year-old Austrian responsible.
Mr. Achleitner has dismissed all rumors of preferential treatment for the two shareholders. "We have the same criteria for seats on the supervisory board held by major shareholders as for other seats," he said in an interview with Germany’s Börsen Zeitung a few days ago.
And it’s not as if the two new investors will be going easy on management. According to information received by Handelsblatt, both HNA and Qatar have given Mr. Achleitner and Chief Executive John Cryan a clear task: Deutsche Bank needs to prove quickly that it is growing again, following last fall's crisis of confidence and an €8-billion ($8.9 billion) capital increase completed earlier this year.
"Deutsche Bank needs to go back to being the bank that we knew in the past," Mr. Schütz, the new HNA representative, said in a speech at the annual meeting. Mr. Simon, representing Qatar, added that despite all the progress made, it was clear "that there was still some way to go."
Overall, shareholders went relatively easy on the bank's management on Thursday – especially compared with previous years. Though there was some criticism and moves by individual shareholders to restrain the bank’s actions – some wanted to limit its ability to raise capital and others wanted independent investigations for past legal wrongdoing – none of it reached a groundswell.
And there was also praise for the progress the bank has made in dealing with legal risks and boosting its capital reserves.
Deutsche Bank has had to pay out almost €15 billion since 2012 in order to settle legal disputes, but to Mr. Cryan’s credit, most of the biggest cases are now resolved. One of the most expensive scandals related to mortgages in the United States and cost the bank $7 billion in December. With that gone, the existential crisis that nearly destroyed the bank last fall is now behind it.
Mr. Achleitner admitted that 2016 had been a difficult year in which the bank had asked a lot of its employees, owners and customers. However, he promised a turnaround was on the horizon. Mr. Cryan also insisted that he would get the bank back on course for growth. If he doesn’t, HNA and Qatar will have a vote on whether he gets to stay on for the foreseeable future.
Daniel Schäfer is head of Handelsblatt's finance section, Michael Maisch is deputy section head and Yasmin Osman is a senior banking correspondent. To contact the author: [email protected], [email protected] and [email protected]