Paul Achleitner was an outsider when he took over the helm of Deutsche Bank's supervisory board in 2012. The former chief financial officer of insurance giant Allianz, he was someone not associated with the bank's transgressions during the 2008/2009 financial crisis.
With five former and current executives on trial for misleading a court, record fines paid in the Libor scandal about manipulated interest rates, soaring legal costs eating away profits and a restructuring underway that some say falls short of the radical change the institution needs, the 58-year-old has had his hands full as head watchdog of Germany’s largest bank.
Some investor consultants, such as the influential U.S.-based advisory firm Institutional Shareholder Services, have called for a vote of no confidence for co-CEOs Anshu Jain and Jürgen Fitschen at Thursday’s annual shareholders meeting.
In an exclusive interview with WirtschaftsWoche, the weekly business magazine and sister publication to Handelsblatt, Mr. Achleitner defended Deutsche Bank’s new strategy, which will see it shed retail-arm Postbank and cut down the investment banking division, and calls for a European alternative to U.S. dominance in the capital markets. In the past, he has always backed his co-chief executives at shareholder meetings. But will he this time?
WirtschaftsWoche: Mr. Achleitner, after months of searching for a new strategy, Deutsche Bank recently presented its restructuring plans – and disappointed shareholders. Investors had expected more, the share price plummeted. What went wrong?
Paul Achleitner: You can’t tell whether or not a strategy is good from the short-term response of the stock market. It’s about the very fundamental question of what Deutsche Bank will stand for in the future. The answer is the result of a very detailed, very profound process. The executive board has checked a number of options and questions that are important for the bank in the long run. We stand behind the decision; the supervisory board has approved of it unanimously.
You've barely answered of the question of what Deutsche Bank will stand for in the future. The impression is that you’ll make some cuts here and there, but overall you’ll continue with things the way they were.
That impression is deceptive. With this strategic course change Deutsche Bank is returning to its roots. Since its foundation in 1870, this bank has financed and supported big companies internationally. Later, it added wealth management and loans to private individuals and firms. Naturally, it has to adapt to its clients’ changed needs. Today, financing takes place more through the capital market, and private investors more frequently carry out transactions digitally. We had to react to that, and we did.
The strategy change seems to be the result of pressure by regulators. The bank seems pushed by outside forces, for example, in the decision to sell Postbank.
Of course, a strategic restructuring doesn’t take place in a vacuum. And of course regulations have played an important role. Deutsche Bank will in future be required to maintain a ratio of equity capital to the size of its total balance sheet of 5 percent. Postbank, on the other hand, is competing with other [regional] institutions where 3 percent suffices. That’s been a clear disadvantage for Postbank, and it will have much better chances outside of a big financial corporation. That’s why we opted for the split, even though the step wasn’t easy for us.
Deutsche Bank bought Postbank in 2008, spent billions on the integration of both companies and now has to shed it again. That's not a long-term strategy, it's zigzagging.
I disagree. We can’t just ignore the changed circumstances. The current regulations putting strict limits on global banks debts didn’t exist in 2008, nor in 2012 when the current leadership assumed office.
So it is regulations that are forcing you to shed Postbank?
We can keep discussing whether or not the targets make sense, but in the end we have to accept them. We also have accept that a decision that might have been right in 2008 isn’t right in 2015 anymore. The split is definitely the better option – for Postbank as well.
Deutsche Bank apparently underestimated the regulators’ determination, otherwise it would have made this decision earlier, rather than reacting so late.
The strategic development of a company is first and foremost the task of the executive board, not the supervisory board. It’s very easy to be wise in hindsight and make a name for oneself with the corresponding comments. That doesn’t change the fact that the regulatory conditions three years ago were very different from today’s.
The reactions have been cautious partly because the new strategy sets the general course but provides few concrete details. Why has the process taken so long?
I know these objections, but you can’t forget how intensely and fundamentally those responsible were looking at the future of the bank. We have discussed many different options, for example withdrawing from international markets to focus on Europe. We have now taken the crucial step of setting the course. Deutsche Bank will remain a leading global bank rooted in Germany. We will continue to support companies with different services globally and will stay a retail bank. We have therefore answered the most pressing questions for the foreseeable future.
Other banks face similar challenges, but have reacted to changing circumstances much more quickly.
I don’t want to comment on our competitors. But looking at strategies of international banks, it’s striking that many of them cut peripheral activities and concentrate on their core services. That’s the step Deutsche Bank has taken as well. It’s focusing on clients with whom it can deepen mutually beneficial relations. In return, it’s splitting with Postbank and withdrawing from the low-profit areas of investment banking.
The impression remains that co-CEOs Jürgen Fitschen and Anshu Jain have idled away a lot of time since taking over the helm in 2012.
The bank has markedly stabilized under their leadership and today is much more solid than in 2012.
Since they assumed office, Mr. Fitschen and Mr. Jain have been heavily criticized for a lack of impact. The strategic review was also marked by indiscretions. How much does that impede your work?
Of course it disappoints me when individuals prioritize their ego over the future of one of Germany’s most important companies. In fact, discretion is an unreasonably big challenge at Deutsche Bank. But we can’t allow that to jar us. We’re progressing on our path as calmly as possible.
Investors too have lost faith in Mr. Fitschen and Mr. Jain. Influential investor advisory firms like ISS have recommended stockholders to give the duo a vote of no confidence at the upcoming shareholder meeting.
It’s legitimate for owners to voice their concerns, assessments and recommendations. That’s the point of a general meeting. We benefit from dealing with other opinions.
Mr. Jain and Mr. Fitschen have missed most of their targets for 2015. Why should they stay?
The two co-chief executives will answer that question themselves at the general meeting.
You have always supported the co-CEOs. Are you still convinced they are the right choice?
I won’t discuss personnel questions of any kind with you. Our task as a supervisory board is monitoring and assessing all developments, and to draw the right conclusions at the right time.
Would you like to continue with Mr. Jain and Mr. Fitschen?
We are working together on returning to being a respected and valued bank.
That doesn’t sound like the two of them are irreplaceable.
Who is? But these are questions about the future of Deutsche Bank as an institution, not about the future of individuals. We have made it clear what we’re aiming for with our new strategy. Now, it’s about successfully implementing it.
Jürgen Fitschen is currently on trial in Munich for allegedly misleading a court in the case of the bankruptcy of the former Kirch media empire. Why do you stand by him?
We are monitoring and assessing the progress of the trial carefully. We are very unemotional about that, and not taking into account personal preferences and sympathies. My faith in the constitutional state is so strong that I expect the right verdict. Of course, we would be happy if it ends with an acquittal.
Inherited affairs like the Kirch trial have tainted Deutsche Bank’s image. The bank is far from your dream of being a respected company again.
These inherited burdens overshadow what all we’ve already achieved. The bank today is much more solid, there is more supervision, and the corporate culture has changed for the better as well. We are working hard and systematically on improving further and eliminating old baggage.
You have your work cut out for you there. British and U.S. supervisors have not only imposed a record fine on Deutsche Bank for the manipulation of benchmark interest rates like Libor, but also criticized a lack of cooperation by the bank during investigations.
We have to distinguish whether it’s about individual mishaps or technical shortcomings. It’s regrettable that the bank couldn’t always immediately fulfill all requirements for technical reasons. The supervisory board so far has not been able to find any active blocking of the investigations. If so, we would have reacted by making personnel changes.
Unlike at other institutions, the manipulation scandal has hardly led to any personnel changes in Deutsche Bank’s higher management ranks. Is that the right signal for a better future?
It’s premature to comment on this as long as not all investigations have been concluded. We will wait and react appropriately.
The majority of mistakes were made in the investment banking unit, which was run by co-CEO Anshu Jain for many years. When will the cleanup work be completed?
I like to compare the current situation with the Industrial Revolution of the 19th century. It brought enormous progress, but it also had side effects that are hard to accept from today’s perspective, such as child labor and reckless environmental destruction. Since the end of the 20th century, we have been experiencing a financial revolution and here as well, some of the phenomena are hardly comprehensible from today’s standpoint. We have to carefully work through this, but we cannot always impose today’s standards. Some of the behaviors were simply a product of the times. I’m not trying to gloss over the past, but we should also give people the opportunity to understand the new realities and change.
You see yourself as a team player and sparring partner. Don’t you have to put your foot down at some point and make it clear that things cannot go on as they are?
If you put your foot down, you have probably already missed a number of key developments. Everyone has their own style. I personally think that putting your foot down is more a sign of weakness. I think that at Deutsche Bank, we have found the right balance between trust and supervision.
Did you underestimate the task?
If you take on this kind of job in such turbulent times, of course you will be faced with difficult situations. I am also a person with emotions; some things have made me angry or disappointed. But I am convinced that Deutsche Bank is an important institution for Europe – and I want it to live up to that role.
Other supervisory board chairmen often have a variety of mandates. You confine yourself for the most part to Deutsche Bank. Is it a full-time job?
The greater the upheaval in an industry, the more time-consuming efficient supervision is. Financial companies are certainly not comparable to industrial firms right now in that sense. Supervision is no longer limited to recent events; it also has to try to anticipate future trends, for example in the area of regulation. That is a huge undertaking – and that is why we have strengthened expertise in our supervisory board and set up seven committees. Our controlling bodies met 63 times last year. That’s probably a record in Germany.
You have also bulked up the bank’s controlling bodies. Two new members are joining the management board and the broader group executive committee now has 22 rather than 12 members. Is all that really necessary?
I think it makes sense to have as many different competencies as possible in the management. After all, the challenges are not decreasing. We are at the beginning of the turn of an era.
In what way?
We talk a lot about how digitalization plays a decisive part in shaping our future. But I think that financing is an equally important dimension. Europe is facing huge challenges and we have to ask ourselves how they can be solved financially. We should actually not only be talking about Industry 4.0, but also Finance 4.0.
Where do you see problems?
The goal of regulation is to cut bank balance sheets. But Europe's financial needs will not decrease; they will increase. That can only be solved by the capital market. We nevertheless continue to use regulations to restrict the possibilities for insurance companies – the only long-term investors in Europe. The banks’ activities in this field are also being eyed critically by regulators. If we are not careful, there will be a similar kind of American dominance here as we already see with the Internet.
What would be so bad about that?
Taking Russia as an example, we see how effective sanctions can be on the capital market. The issue has an immense political dynamic; we are also seeing this in the discussions on Greece. I think we will do well if we allow for a European alternative to the U.S. competitors. Our customers around the world feel the same way.
Will Deutsche Bank remain a German bank with this global approach?
It will remain as German as the country’s other major industrial firms are. They are international companies with strong German roots.
One has the impression that employees in retail banking now have to pay for the sins of investment bankers, because they are the ones who set the tone in the company.
I think that is a very simplified way of looking at it. We decided against completely splitting off our retail banking unit; it remains an important part of the bank. If changes are made, they are the result of changed customer behavior and not supposed preferences of individuals in the bank management.
Industry digitalization is bringing about real change. New players are using it to compete with banks. How are they prepared?
Digitalization is changing society and business models in the same way the introduction of electricity once did. I think large banks can deal with new technologies better than newcomers. But that does not mean there are no niches where they too can be successful.
How is digitalization changing Deutsche Bank?
It’s more a matter of fundamental process and less a question of attractive apps for consumers – even if they are important. What is decisive is whether we can adapt our structures in such a way that we can best use the enormous volume of existing data to the advantage of our customers.
Businesses such as algorithm-based high frequency trading suggest that the digitalization of banks has gone too far.
Our industry painfully abandoned the idea that models are superior to humans back during the crisis starting in 2008. We can optimize our algorithms as much as we want, they will not adequately capture causalities. And not even the best program can replace an experienced expert who immediately notices when someone in the dealing room starts to sweat.
What role does individualized consultation play?
Demand for it will grow and banks will transition more strongly to making money from fees for services and consulting. They have hardly any alternative since they make less and less money off the margin between lending and deposit rates.
Banks and their customers are suffering from the ongoing low interest rates.
Not everyone. Credit users and the government benefit greatly from the historically low interest rates. But they also hit every single saver and have an enormous effect on the pension system. Investors need more and better guidance. That is also why it is important for us to continue to have expertise on the capital market.
You are a fan of the soccer club FC Bayern Munich. The team’s coach Pep Guardiola is under pressure. How should the club react?
I hope that it will be guided by long-term prospects and not short-term agitation. But a successful coach needs more than just expertise – he also needs good fortune.