Deutsche Bank Investors Question New Strategy

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Deutsche Bank co-CEOs Anshu Jain and Juergen Fitschen
Deutsche Bank co-Chief Executive Officers Anshu Jain and Juergen Fitschen. Photographer: Martin Leissl/Bloomberg

Deutsche Bank AG is losing the support of some of the biggest fund managers as the plan the bank presented last month to revive returns leaves investors underwhelmed.

Hermes EOS, which represents institutional investors, said it will vote against approving actions of Deutsche Bank’s management at the Thursday shareholder meeting. A top 20 investor, who asked not to be identified, also told Bloomberg they plan to vote against management.

“With this vote we formally express our strong concerns about a range of issues and our lack of confidence in the management board,” Hermes, which said it acts on behalf of 41 clients and advises on about $193 billion of assets, said in an e-mailed statement Wednesday.

Deutsche Bank co-Chief Executive Officers Anshu Jain and Juergen Fitschen are under pressure as investors question whether their strategic plan announced last month will succeed after Germany’s biggest bank failed to meet its previous targets. Shareholder groups including ISS Proxy Advisory Services and Ivox GmbH have criticized management and called on investors to vote against approving their actions.

“We urge the bank’s supervisory board to review the composition of the management board, taking its performance over the last three years and its new strategy into account,” Hermes said.

Management Review

A spokesman for Deutsche Bank in Frankfurt declined to comment on shareholder opposition to the board.

Deutsche Bank is reviewing further management changes as the firm tries to cut costs and shrink businesses, two people with knowledge of the plan said Tuesday. The review of the eight-member management board is driven by supervisory board Chairman Paul Achleitner and a decision may be announced within the next couple of months.

As part of the overhaul, Rainer Neske, the head of Deutsche Bank’s private and business clients division, is poised to step down, a person with direct knowledge of the matter said on Monday.

U.K. bookmakers Ladbrokes Plc cut its odds on Jain leaving his position this year to evens -- meaning a successful two-pound ($3.10) bet will yield two pounds of winnings -- from 4-1 in March. Paddy Power Plc is more optimistic about his survival, offering odds of 9-1, compared with 12-1 two months ago.

Independent Audit

“Hermes EOS has previously raised concerns with Deutsche Bank about its progress on culture change, dealing with pending litigation and investigations and the delivery of targets,” the group said. It previously queried the bank on the suitability of Fitschen and Jain to lead a change in the lender’s culture given their long tenure in key leadership positions, including at the investment bank, Hermes said.

Deutsche Bank’s management faced the lowest approval rate at last year’s annual shareholder meeting since at least 2002, with just under 89 percent of investors voting in favor of ratifying their actions.

Shareholders on Thursday will also vote on whether to appoint an independent auditor to evaluate whether management damaged the company in connection with making provisions for litigation risks.

Deutsche Bank last month was fined $2.5 billion for manipulating interest-rate benchmarks by four regulators in the U.S. and the U.K. The penalty was the biggest that Deutsche Bank has had to pay for misconduct and comes on top of the 7.1 billion euros ($7.9 billion) the lender has spent on litigation in the last three years.

Shares Fall

The bank’s shares have posted the worst performance among global peers since Jain and Fitschen took the helm amid concerns about rising legal costs, weak capital buffers and low profitability. Since the bank announced the strategic overhaul the stock has dropped 6 percent, compared with a 1.4 percent gain in the STOXX Europe 600 Banks Price Index.

Deutsche Bank said last month it plans to make additional annual cost cuts of 3.5 billion euros by 2020, sell its Postbank consumer-lending unit and shrink the securities division to boost the return on tangible equity to at least 10 percent in the medium term from 3.9 percent in the first quarter. The company hasn’t provided details of how it will lower expenses, while analysts and investors questioned its track record on costs.

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