No German Jain Bringing Deutsche Bank to World as Customer’s Man – Businessweek

Twelve days into his job as co-
chief executive officer of Deutsche Bank AG (DBK), Anshu Jain stood
beside Germany’s finance minister and in front of video images
of lush forests and rolling rivers as hundreds of businessmen
sang the national anthem.

Jain, an Indian-born British citizen who built a career as
a London-based investment banker and speaks little German,
remained silent as guests gathered for his debut speech last
June at Berlin’s InterContinental hotel raised their voices in
praise of the fatherland.

It was a moment that captured the 50-year-old banker’s
dilemma: While he works to keep Germany’s biggest lender
anchored in Europe’s largest economy, many Germans see him as an
outsider selling products they don’t understand, Bloomberg
Markets will report in its June issue.

“The contract between banks and society was broken during
the crisis,” Jain told the audience. “Banks are now viewed
with suspicion. That’s understandable. We have to work harder to
prove our activities are safe.”

That task has since become harder. Jain, who helped build
Deutsche Bank into one of the world’s biggest investment banks
and scaled management peaks in an 18-year career at the
Frankfurt-based company, is facing a raging storm over the
alleged misdeeds of bankers, many dating from the time he led
the securities unit. Anger over taxpayer bailouts and criminal
behavior has stoked calls by lawmakers across Europe to break up
the largest lenders.

Police Raid

About 500 police and tax investigators raided Deutsche Bank
offices in December in a probe of tax evasion in carbon markets.
A Milan judge convicted the bank and three other firms that
month of fraud in the sale of derivatives to hedge the city’s
interest-rate risk.

The company has suspended or fired at least seven traders
suspected of attempting to rig benchmark lending rates. And
Germany’s central bank and top regulator are investigating
allegations that Deutsche Bank hid losses during the financial
crisis, people with knowledge of the matter said in April.

The bank says claims of covering up losses “are wholly
unfounded.” It plans to appeal the verdict in Milan and says
it’s cooperating with prosecutors probing carbon markets. Jain,
who became sole head of the corporate and investment bank in
2010 and hasn’t been accused of wrongdoing in any of the cases,
said in January that he was sickened by rate-rigging at the
world’s biggest banks. The firm’s own investigation found board
members weren’t involved in attempts to manipulate rates.

Tumultuous Year

Still, the cascade of bad news made Jain’s first year as
co-CEO tumultuous, even as he improved capital ratios. The raids
shook employees at Deutsche Bank and hurt the company’s image
among Germans, many of whom cite the hyperinflation that haunted
their parents after World War I and are wary of financial
products that aren’t easily explained.

Deutsche Bank raised its litigation reserves to 2.4 billion
euros ($3.1 billion) at the end of December from 800 million
euros three months earlier. That expense, along with the cost of
firing almost 2,000 employees and increasing capital, pushed the
lender to a 2.5 billion-euro fourth-quarter loss, its biggest
since the three months following the collapse of Lehman Brothers
Holdings Inc. in September 2008.

The loss also reflected Jain’s decision to write down the
value of asset-management and investment-banking businesses the
bank had acquired more than a decade ago and that had failed to
meet expectations.

Deutsche Bank is scheduled to publish first-quarter results
tomorrow. The bank will probably say net income fell 13 percent
to 1.21 billion euros in the period after it set aside more
money for risky loans and as revenue at its securities unit
declined, according to the average estimate of six analysts
surveyed by Bloomberg.

‘Negative Past’

“Jain runs the risk of becoming the face of the negative
past of investment banking,” says Konrad Becker, an analyst at
Merck Finck & Co. in Munich who has tracked German banks since
1990. “The fact that he led the investment bank over the period
when such events took place causes some people’s foreheads to
wrinkle with concern.”

All of this is playing out against the backdrop of German
elections scheduled for September. Chancellor Angela Merkel is
running for a third term against Social Democrat Peer Steinbrueck, who wants banks to separate securities units from
retail arms to protect depositors from the risk of traders
running up losses with wrong-way bets.

“Financial markets have lost proportion and perspective,”
Steinbrueck said when he announced his plan last year.

Merkel’s Plan

U.K. regulators are pushing a similar plan, and European
Central Bank governing council member Erkki Liikanen has
proposed a version for the 27-nation European Union. The U.S.
has passed rules curbing proprietary trading to prevent banks
from putting depositors’ money at risk. “There’s a difference
by degrees, but the reaction is similar in other industrialized
countries,” says Thomas Mayer, a senior adviser at Deutsche
Bank. “People all want to tame the beast.”

Merkel’s Christian Democratic Union, which has backed a
milder option for banks to segregate proprietary trading, leads
in the polls. Her re-election would make life easier for Jain
and co-CEO Juergen Fitschen. They regularly tell reporters and
politicians that a division would drive up borrowing expenses
and cost the bank its ability to compete with global peers in
offering companies an array of financial services.

Steinbrueck visited Deutsche Bank’s trading floor in London
earlier this year. Jain gave Merkel a similar tour before she
became chancellor in 2005, and he has met with her since
becoming co-CEO.

Costly Rescue

Deutsche Bank, which at the end of 2012 had assets under
accounting rules comparable to those of U.S. banks of 1.2
trillion euros — equivalent to 43 percent of Germany’s gross
domestic product — could become too costly to rescue if it goes
bust, proponents of a split say. Steinbrueck says that companies
can cope with pricier loans and that the benefits of a safer
financial system outweigh the consequences of banks’ losing a
competitive edge.

While management can boost capital and bolster profits by
cutting costs, the actions of governments, regulators and
central banks have a greater influence, Jain has said. Jain’s
defense of so-called universal banks has found support among
some German companies. In January, the biggest industry lobbying
groups came out in favor of allowing corporate and investment
banking to continue under one roof.

‘Free Pass’

“As a society, we never really understood that banks have
to make money,” says Christine Bortenlaenger, a former
executive at the Munich stock exchange who now leads Deutsches
Aktieninstitut, a financial lobbying group. “Politicians have
been given a free pass to impose ever more financial regulation
with the support of voters because of the lack of economic
knowledge.”

Henri de Castries, CEO of French insurer Axa SA and a
Deutsche Bank client, shares that view.

“Germany is a phenomenal exporter, and it is in Germany’s
best interest to have strong banks,” de Castries says. “What’s
at stake is the financing of the European economy.”

It won’t be easy for Jain to keep the trust of executives
and ordinary Germans. He and Fitschen, a German banker 14 years
his senior, inherited a laundry list of lawsuits and the lowest
capital level among the nine biggest investment banks.

Beer, Spirits

Jain spent most of his career in London, working with
institutional clients. He sold interest-rate swaps and other
products to hedge funds at Merrill Lynch & Co. before following
his mentor, Edson Mitchell, to Deutsche Bank in 1995. After
Mitchell died in a plane crash in December 2000, Jain took over
as head of debt. In 2004, then-CEO Josef Ackermann promoted him
to lead the combined debt, equity sales and trading unit. He
became co-CEO in June 2012, succeeding Ackermann, who had held
the top spot for a decade.

“Deutsche Bank’s past CEOs said investment bankers were
needed, but they never had to justify themselves like today,”
says Jan Hagen, a faculty member at the European School of
Management and Technology in Berlin. “The challenge is to show
that things have changed. Jain’s a lot tougher to sell to
Germans than Fitschen.”

Fitschen, whose parents served beer and spirits to
tradesmen at a village inn about 35 miles (56 kilometers) from
Hamburg, rebuilt the homestead, and his family has continued a
tradition of trading horses. He strikes an informal tone in
conversation and rarely uses prepared remarks when addressing an
audience.

Rhetorical Questions

Jain, the son of a civil servant, was born in Jaipur, in
India’s Rajasthan state. He studied economics at Sri Ram College
of Commerce at Delhi University and earned a master’s degree in
business administration from the University of Massachusetts
Amherst in 1985. He asks rhetorical questions in speeches and
frequently appeals to the intellectual rather than emotional
sensibilities of those he addresses.

He’s the firm’s strategist and contact for regulators and
investors. Fitschen is Deutsche Bank’s face in Germany.

“Jain comes across as a very different kind of person,”
says Brun-Hagen Hennerkes, chairman of the Stuttgart-based
Foundation for Family Businesses. “He seems to be developing
the concepts in investment banking, while Fitschen is involved
in implementation, as he knows us better.”

Fitschen earned the respect of German executives after
spending a decade in Asia financing trade and working for
corporate clients, Hennerkes says. Jain’s experience growing up
in India and his time spent in London mean he has a perspective
other bank CEOs don’t, says Axa’s de Castries, who uses Deutsche
Bank as a counterparty in trades and as an adviser on deals.

‘Global Perspective’

“He has something quite unusual, which is an insight in
both worlds, the emerging one and the major countries,” de
Castries says. “It’s one thing to see it through the eyes of
advisers who have exactly the same background as yours and to
have it through the eyes of someone who knows both sides.”

Deutsche Bank’s focus on Europe means Jain can better
explain the implications of the region’s debt crisis than his
U.S. peers, say Steven Kandarian, CEO of MetLife Inc., and
Robert Benmosche, CEO of American International Group Inc., two
New York-based insurance companies that are clients.

Benmosche says he invited Jain to an AIG board meeting in
London to discuss what the debt crisis could mean for the
insurer’s business in Europe amid speculation that the common
currency would splinter.

“Anshu is probably deeper in what is going on in the
European markets than a number of the other bankers that we deal
with,” says Kandarian, who has worked with the German lender to
issue debt and equity for acquisitions, hedge its currency risk
and help make investment decisions.

“He ticks a number of the key boxes, including providing
us that global perspective.”

‘Listen Too’

People who have met Jain often mention his sharp intellect
and calm demeanor. His intelligence and sometimes blunt
rebuttals can make opposing his view intimidating, say three
people who have worked with him and who asked not to be
identified, as their encounters weren’t public.

“Now, I have to win more people over, and you can’t do
that by talking, you have to listen too,” says Jain in an
interview in Bonn, sitting in an office at Deutsche Postbank AG,
the retail lender Deutsche Bank acquired in 2010. “Am I great
at it? No. Am I getting better at it? I think I am.”

Boosting Capital

Jain, who speaks with a slight Indian accent, is married to
a travel writer, has two children and retains a residence in
London after moving to Frankfurt last year. He’s a vegetarian,
having been raised in the Jain religion, an offshoot of Hinduism
that rejects the caste system and gives adherents the last name
Jain. He’s almost five years younger than the average age of
CEOs at Germany’s 30 biggest public companies and one of nine
non-Germans leading firms included in the benchmark DAX Index.

“Jain’s position at the top of Deutsche Bank can be a
great opportunity for Germany,” the European School of
Management and Technology’s Hagen says. “If he can pull it off,
that will show that the bank and the country are places people
are judged on their merit rather than background.”

Jain and Fitschen have focused on improving capital levels.
They’ve sold holdings, reduced trading risk and adjusted
internal models, with the approval of regulators, to reduce the
amount of capital needed to absorb losses. The firm’s Tier 1
common equity ratio, a measure of financial strength, stood at
8.5 percent on March 31 compared with 8.4 percent at London-
based Barclays Plc (BARC), according to data compiled by Bloomberg
Industries. A year earlier, Deutsche Bank was 0.9 percentage
point behind Barclays under less stringent rules.

“We’ve closed the gap to the bottom of the peer group in
six months, which is far faster than anyone thought we would
have,” Jain says.

German Reliance

Deutsche Bank’s reliance on the German economy — expected
by the International Monetary Fund to expand 0.6 percent this
year while that of the euro area as a whole contracts — means
assets are of a higher quality than peers’ and allows the bank
to borrow on better terms than some competitors. Credit-default
swaps on debt sold by Deutsche Bank cost about 30 basis points
less than similar contracts on Barclays debt, data compiled by
Bloomberg show. A basis point is 0.01 percentage point.

Being headquartered in a country with the financial
strength to rescue the lender if it runs up losses helps, too,
Hagen says. Deutsche Bank navigated the turmoil following the
2007 meltdown of the U.S. housing market without taking direct
state aid.

Top Three

The relationship between the bank and Germany, where it
generated 37 percent of its 33.7 billion euros of 2012 revenue,
has been mutually beneficial. Depositors trust the lender with
cash that helps finance its investment bank. Its fund managers
promise returns on pension savings, which they can invest at a
profit. Corporate bankers lend to German companies from which
they can also win fees by advising on deals and products to
reduce risk.

“Deutsche Bank’s reach runs from rural Baden-Wuerttemberg
to Vietnam,” Hagen says. “Being a global bank with local roots
is a huge advantage for the German economy and the bank.”

Jain’s goal is to keep Deutsche Bank among the top three
securities firms. The bank had the largest share of the global
foreign-exchange market as of November and overtook Barclays as
the biggest bond trader last year, according to Greenwich
Associates, which tracks investment-banking revenue.

While markets remain shellshocked by the financial and
sovereign-debt crises, Jain is betting that money managers and
transaction bankers who help clients carry out payments will
help lift profit.

Wealth Management

Deutsche Bank combined its units that manage funds for the
wealthy and for institutional investors in June under Michele Faissola, one of Jain’s lieutenants at the investment bank.
Faissola, an Italian, told investors in Frankfurt in September
that he would tap cash in emerging markets as well as from the
superrich to boost pretax profit at his division to 1.7 billion
euros in 2015 from 800 million euros in 2011.

Werner Steinmueller, head of transaction banking, told
investors at the same conference that his unit is working to
increase pretax profit to about 2.4 billion euros in 2015 from 1
billion euros in 2011 by providing more trade finance and
foreign-exchange services.

The bank is trying to boost business with companies with 50
million euros or less in annual revenue that form the backbone
of Germany’s economy. Deutsche Bank moved coverage of 11,500
such firms to its retail and corporate division from the
investment bank in March and will offer services from 250
branches rather than regional centers.

Changing Culture

Robert Rankin and Colin Fan, who run the investment bank,
which accounts for 40 percent of the firm’s expenses, said in
September that they plan to reduce costs to less than 65 percent
of income in 2015 from 71 percent in 2011 by cutting pay and
staff. They said the largest firms will benefit as capital rules
force competitors to exit businesses, leaving the remaining
banks with a bigger slice of fees.

Jain has sought to convince regulators, politicians and
ordinary Germans he’s changing the culture of the bank in which
he has thrived for so many years. That most of the litigation
Deutsche Bank is grappling with stems from before 2009 shows
efforts to prevent such behavior are working, he says.

The company has reduced bonuses, including Jain’s. The co-
CEOs were awarded 4.9 million euros each for 2012. That
represented a 50 percent cut for Jain, who was paid 9.8 million
euros for 2011 as head of the investment bank, and a 16 percent
increase for Fitschen, who ran the German business.

Two CEOs

Jain’s path to the top wasn’t easy. Ackermann was opposed
to Jain’s taking the job, on the grounds that he would tilt the
lender’s focus too much toward investment banking, said two
people at the bank with knowledge of the matter who asked not to
be identified because the deliberations were private.

After a two-year struggle between then-Chairman Clemens Boersig and Ackermann, the board settled on co-CEOs. That was an
attempt to balance the firm’s role as a trading house, with the
majority of its revenue and employees outside Germany and
competing with Goldman Sachs Group Inc. (GS), and a 143-year-old
institution with deep ties to the country’s companies and
political establishment.

Boersig also considered partnering Jain with Chief
Financial Officer Stefan Krause, 50, or consumer-banking head
Rainer Neske, 48, before picking Fitschen, according to the two
people. Paul Achleitner, a 56-year-old Austrian, stepped down as
CFO of Munich-based insurer Allianz SE in May to succeed
Boersig. The former Goldman Sachs banker had worked with
Deutsche Bank, advising the firm on a major step to becoming a
global investment bank: the $9 billion purchase in 1998 of
Bankers Trust Corp.

‘Greatest Accomplishment’

Fitschen’s contract will expire in 2015, at which point the
supervisory board could ask him to stay on. Or Jain could
continue as sole CEO or partner up again. Jain says he and
Fitschen are concentrated on shoring up capital levels and
stopping regulation from eroding Deutsche Bank’s business model
rather than future management constellations.

“If at the end of 30 months we can look back and feel that
we succeeded in repositioning the bank, that for me will be the
greatest accomplishment of my career,” Jain says.

In the meantime, Jain is seeking a better understanding of
what drives Germany. He’s working on improving his German,
though he says his schedule hasn’t allowed him to make the
progress he’d like to see. He has talked to academics and
writers, according to one professor who says he and Jain
discussed the country’s relationship with Israel and its World
War II past. He’s also met with politicians in Berlin.

Learning German

At one such session last year, Jain and a group of younger,
English-speaking lawmakers dispensed with their neckties to
discuss over drinks the role of Deutsche Bank in Germany and
globally, according to one colleague who attended the meeting.

“I’ve had a good relationship with the people here in
Berlin for many years,” Jain said in November at a conference
in the capital. “It isn’t as if I just turned up overnight.”

Although learning the language and the culture may help,
for Jain to succeed — and perhaps get a chance to run the bank
by himself one day — he’ll need to convince German retail and
corporate clients of the value of being home to a global
investment bank. That will take time, given the abuses of the
recent past, says Hennerkes of the Foundation for Family
Businesses and a 25-year veteran of Deutsche Bank’s advisory
board for the Stuttgart region.

Hennerkes says he wants the lender to keep its investment
bank, one focused on the needs of companies rather than the
profits of its bankers.

“I come from a different world than Jain and the business
he does,” Hennerkes says. “But I know Deutsche Bank needs
investment banking to generate enough profit in order to also
conduct its safer business around the world.”

To contact the reporter on this story:
Nicholas Comfort in Frankfurt at
ncomfort1@bloomberg.net

To contact the editor responsible for this story:
Frank Connelly at
fconnelly@bloomberg.net