Deutsche Bank faces calls to spin off its investment banking activities within two years and pull back from the US, under proposals put forward by activist shareholders at its forthcoming annual meeting.
The demands come from Ekkehard Wenger, a university professor and a prominent champion of change at many of Germany’s biggest companies for two decades, and Leonhard Knoll, a fellow academic, who liken the investment banking industry to football where “everything is distributed to the players and nothing is left for the club”.
They claim that shareholder value has “been destroyed on a substantial scale in the past 10 years” at Deutsche, even as rich bonuses have been paid to its investment bankers. “It’s time to act. The investment banking gurus should be urged to buy the investment banking business and conduct it for their own account,” their motion says.
The pair are also calling for an audit of options granted when Deutsche’s share price was depressed in 2003, a review of Deutsche’s alleged failure as a major shareholder to tackle poor performance at DaimlerChrysler, and an audit of bonuses paid for activities that have exposed the bank to litigation risk.
Deutsche Bank’s management board said it would recommend that the proposals be rejected.
The intervention comes less than a week after Luqman Arnold, the former chief executive of UBS, called on the Swiss bank to separate its investment banking and wealth management businesses.
Allianz, the German insurer, last month moved to separate its Dresdner bank subsidiary into its constituent retail and corporate banking units.
Deutsche gets most of its profits from its investment banking activities but has said it will take a writedown of €2.5bn ($3.9bn) in the first quarter because of falling values of its leveraged loan portfolio and other securities.
The professors’ demands come as banks face pressure from regulators and shareholders to reform remuneration. Some investment banks paid out generous bonuses to their staff during the first quarter in spite of losing billions of dollars for their shareholders last year.
Excessive bonuses have also been blamed for encouraging risky behaviour in pursuit of short-term reward at the expense of long-term shareholder value. The call for Deutsche to pull back from the US runs counter to its strategy to be an established competitor to the traditional Wall Street investment banks.
The professors urge Deutsche to “launch a de-Americanisation process without delay before it becomes even more deeply embroiled” in the US, which they describe as “the country of crisis, unsound economic activity and pathological overcompensation of fair weather captains”.
Activists Urge Deutsche Bank to Pull Back from the US
James Wilson and Chris Hughes
The Financial Times