Fitschen and Jain Revive Deutsche Bank Co-CEO Tradition
When Juergen Fitschen and Anshu Jain take over as co-chief executive officers of Deutsche Bank AG (DBK) this week they’ll be reviving a tradition of dual leadership at Europe’s largest bank that ran from the 1960s to the 1980s.
The 63-year-old Fitschen, a Deutsche Bank veteran steeped in corporate banking, has served as head of Germany since 2005, while Jain, a native of India 14 years his junior, led an expansion of the investment bank from offices in London.
Deutsche Bank is pairing them to bridge its roles as a trading colossus that vies with Wall Street firms like Goldman Sachs Group Inc. (GS) and a Frankfurt-based lender to German companies. The duo will have to face rising capital requirements and Europe’s escalating sovereign debt crisis, while seeking to avoid a power struggle that could derail the bank’s strategy, said Christopher Wheeler, an analyst at Mediobanca SpA. Deutsche Bank’s three previous periods of co-leadership coincided with higher profits and gains for shareholders.
“The bank tends to have dual leadership during times when Deutsche Bank needs to be led to calmer waters,” said Markus Rudolf, a professor of banking and finance and associate dean at the WHU Otto Beisheim School of Management in Vallendar, Germany. “Times may be so uncertain that it can benefit from two perspectives -- international investment banking and the domestic business -- and emerge stronger.”
Fitschen and Jain will assume leadership after the annual meeting in Frankfurt tomorrow, replacing Josef Ackermann, who grew into one of Europe’s most influential bankers during a 10-year tenure as CEO. Deutsche Bank passed France’s BNP Paribas SA last year to become Europe’s largest bank, with assets equivalent to more than 80 percent of the German economy. The company is changing leaders just as concern that Greece will exit the euro is sending tremors through Europe’s financial system. The euro fell yesterday to the lowest against the dollar since July 2010.
Fitschen said last week it is “dangerous” to conclude that Greece will leave the common currency. “We should not talk so much about the exit, but we should talk more about how we can make sure that this event comes to an end and we focus all our attention, all our interest on how to maintain Greece as a member of the euro zone,” he told U.S. and German business and political representatives at a conference in Berlin hosted by the American Chamber of Commerce.
Fitschen’s relationships with German companies and politicians may have helped him gain the support of the supervisory board as the candidate to join Jain as co-CEO, rather than contenders such as Chief Risk Officer Hugo Banziger, consumer-banking head Rainer Neske and finance chief Stefan Krause.
Fitschen’s ties to firms such as Kuehne & Nagel International AG, where he joined the board in 2008, made him a logical partner for Jain, an investment banker with limited knowledge of German. Fitschen advised the world’s biggest freight-forwarding company for several years after he met Hamburg-born billionaire Klaus-Michael Kuehne about a decade ago.
“Fitschen gave us a lot of support and his advice was always highly appreciated,” Kuehne, 74, the company’s honorary chairman and majority owner, said in an e-mail. Kuehne & Nagel, founded more than 120 years ago in the German port city of Bremen, is now based in Schindellegi, Switzerland.
Deutsche Bank counseled Kuehne & Nagel on the purchase of ACR Logistics in 2005, which more than doubled its contract logistics business, and managed the sale of SembCorp Logistics Ltd.’s stake in the shipping company in 2004, ending a four-year alliance.
Time in Asia
Fitschen, who has a fraternal twin brother, was raised at his parents’ inn in Hollenbeck, a village 34 miles (55 kilometers) from Hamburg, in northern Germany.
The longest-serving employee on Deutsche Bank’s management board, he began his 37-year banking career with Citigroup Inc. in Hamburg in 1975, before joining the German lender in 1987 and moving to Asia. He held positions in Thailand, Tokyo and Singapore, where he was executive director at the regional head office in 1993. His time abroad gave him knowledge of foreign markets and experience working with the companies that power Germany’s export-driven economy.
He returned to Germany in 1997 as a member of the divisional board for corporates and institutions and held posts in global transaction banking and relationship management. In 2005, he was named CEO of Germany and began to oversee country heads across the world.
He sits on the supervisory boards of German retailer Metro AG (MEO) and glassmaker Schott AG, and is also a board member at the Committee on Eastern European Economic Relations, which represents German companies with interests in Russia and eastern Europe. German executives on the board include Johannes Teyssen, the CEO of utility EON AG, as well as Harald Schwager, a board member at BASF SE, according to the group’s website.
Fitschen helped rehabilitate Deutsche Bank’s reputation in Germany after corporate clients felt “neglected” by its international expansion and focus on investment banking in the 1990s, said Horst Loechel, a professor of economics at the Frankfurt School of Finance & Management.
Jain, born in Jaipur in Rajasthan state and educated in India and the U.S., helped lead the investment-banking expansion after joining in 1995 from Merrill Lynch & Co. He was picked to run the combined debt and equity sales and trading unit in 2004 and named sole head of the investment bank in June of 2010, assuming responsibilities for the corporate finance and transaction banking units from Michael Cohrs, who retired.
Period of Transition
The corporate and investment bank under Jain accounted for 56 percent of revenue last year, 73 percent in 2010 and 67 percent in 2009, the year he joined Deutsche Bank’s management board. Still, the division caused a record loss in 2008 after the collapse of Lehman Brothers Holdings Inc. and led to Deutsche Bank missing its full-year targets in 2011.
Naming Fitschen alongside Jain may address concern that the center of power at Deutsche Bank had shifted too much toward investment banking and London from commercial and consumer lending in Frankfurt. That said, Jain may ultimately get the top job alone, said Jon Peace, an analyst at Nomura Holdings Inc. in London. Deutsche Bank extended Jain’s contract by five years and Fitschen’s by three years in July.
“If Jain can do well and grow into the role and show that he can be the politician, I wouldn’t be surprised if you can see quite an amicable retirement for Fitschen, and Jain becoming sole CEO,” said Peace.
Jain made his influence felt in a boardroom shakeup in March, said Mediobanca’s Wheeler. The company named three investment bankers to the management board and pushed out two executives considered close to Ackermann, risk chief Banziger and Chief Operating Officer Hermann-Josef Lamberti. It will also expand the group executive committee to 18 members from 12 next month, adding bankers with whom Jain has worked closely.
Still, as Europe’s debt-crisis curbs trading, Deutsche Bank’s business with the small and medium-sized companies known as Germany’s Mittelstand may grow in importance. Net revenue in Germany, before setting aside money for losses on loans, jumped 79 percent to 12.6 billion euros in 2011 from 7.04 billion euros in 2005, when Fitschen took charge in the country.
Deutsche Bank has about 930,000 customers in Germany’s Mittelstand, the typically family-owned firms with fewer than 500 staff that employ more than 60 percent of German workers and contribute roughly half of the country’s GDP.
Higher capital requirements are also making some investment-banking businesses less profitable. Banks worldwide will be required to hold common equity of at least 7 percent of risk-weighted assets by 2019 when new rules from the Basel Committee on Banking Supervision take full effect. Firms deemed systemically important, such as Deutsche Bank, will need more.
“The financial services industry is radically changing because of regulation and Fitschen is the right person along with his partner to take Deutsche Bank to the next phase,” said Fred Irwin, an executive at Citigroup in Germany who has known him for 28 years, since their days together at the U.S. bank.
Fitschen and Jain declined to be interviewed for this story, said spokesman Ronald Weichert in Frankfurt.
Ackermann’s succession didn’t go smoothly. The bank decided in 2009 to extend his term for three years after the supervisory board failed to agree on a replacement. The 64-year-old CEO later sought to become chairman of the supervisory board, a move that would have run counter to German corporate governance rules, before changing his mind. The Swiss native has since decided to become chairman of Zurich Insurance Group AG. (ZURN)
Ackermann led Deutsche Bank through the financial crisis of 2008 without direct government aid. The share price declined 58 percent during his decade in charge, compared with a 68 percent drop in the Bloomberg Europe Banks and Financial Services Index over the same period.
Deutsche Bank had co-CEOs three times in the 1960s, 1970s and 1980s. Profit on average doubled during the three periods of dual leadership as Deutsche Bank’s size by assets grew by two-thirds on average, according to company reports.
The first duo was from April 1967 to the end of 1969 with Karl Klasen and Franz Heinrich Ulrich. Shares more than doubled from the beginning of 1967 to the end of 1969 as they tackled fallout from Germany’s first recession since World War II, which began in 1966.
Klasen, a northern German like Fitschen whose roots were in shipping, held the post for less than three years before becoming the president of Germany’s Bundesbank, according to biographies on the website of the Historical Association of Deutsche Bank.
Prisoner of War
Ulrich, who was severely wounded as a soldier under the Nazi regime and interned in a British prisoner of war camp, stayed on as sole CEO until 1976, helping to found the company’s DWS mutual fund unit and open the first foreign post-World War II branch in London.
The second and longest-serving duo was Wilfried Guth and F. Wilhelm Christians, who co-led the bank from May 1976 to May 1985. The stock gained 176 percent from the beginning of 1976 to the end of 1985. Guth, also a POW who later studied at the London School of Economics, represented the tight-knit corporate landscape dubbed Germany Inc. with supervisory board roles at Daimler-Benz AG, Siemens AG and Allianz. During his tenure he received advice from his uncle, German Economy Minister and Chancellor Ludwig Erhard.
Christians, a trained lawyer and art fan, was known as a “foreign minister” of Deutsche Bank, promoting East-West relations and helping realize the first German-Soviet natural gas pipeline business. He also promoted Mittelstand companies listing on the stock exchange to boost capital and the acceptance of stocks as investments.
Christians stayed on as CEO for three years as part of the third duo with his new co-head Alfred Herrhausen between May 1985 and May 1988. The shares rose 47 percent between the start of 1985 and end of 1988.
Herrhausen, who served three years with Christians before serving as sole head for another year, helped build Deutsche Bank’s international business in the Americas, Australia and South Africa and eagerly took “political positions,” including advising the government on reforming Germany’s financial system as well as debt relief for third-world countries.
‘Recipe for Conflict’
He was killed in November 1989 when a road-side bomb placed on a bike penetrated his armored car. The murder was never solved.
Not everyone is optimistic about the new co-CEO arrangement. A power struggle between Fitschen and Jain could compromise Deutsche Bank’s ability to formulate an effective strategy, said Wheeler at Mediobanca, who has a sell rating on Deutsche Bank.
“It might work in the short-term but it is a recipe for conflict, especially in finance,” said Wheeler. “It is very difficult, particularly in investment banking because it is a business that is all about having strong views. Without that it is difficult making a living in the business. That means compromise is sometimes quite difficult.”
Beginning tomorrow, Deutsche Bank investors will be watching to see whether the co-heads can work together. Until now, their rivalry has been limited to sports.
Fitschen joked last month that he challenged Jain to a best-of-five competition in soccer, table tennis, golf, cricket and handball. The catch being that the German believes he can best Jain, a cricket fan and avid golfer, at three of the five sports.
“People that underestimate him would be making a mistake,” said Citigroup’s Irwin, who also heads the American Chamber of Commerce in Germany.
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