Josef Ackermann
| Josef Ackermann | |
|---|---|
 | |
| Ackermann in 2012. | |
| Born | Josef Meinrad Ackermann February 7, 1948 (age 78) Walenstadt, canton of St. Gallen, Switzerland |
| Nationality | Swiss |
| Citizenship | Switzerland |
| Education | University of St. Gallen (economics and social sciences; Dr. oec.) |
| Alma mater | University of St. Gallen |
| Occupation | Banker |
| Years active | 1977–present |
| Employer | Deutsche Bank; Credit Suisse; Bank of Cyprus |
| Company | Deutsche Bank |
| Organization | Institute of International Finance (chairman) Group of Thirty |
| Title | Former chief executive officer of Deutsche Bank (2002–2012) |
| Term | 2002 – May 2012 |
| Predecessor | Rolf-Ernst Breuer |
| Successor | Anshu Jain and Jürgen Fitschen (co-chief executives) |
| Board member of | Siemens Shell Bank of Cyprus (chairman) Renova Management |
| Known for | Leading Deutsche Bank through the financial and eurozone crises; the Mannesmann trial; the 25 percent return on equity target |
| Salary | €9.4 million (2009); €8.8 million (2010) |
| Spouse | Pirkko Mölsä |
Josef Meinrad Ackermann (born 7 February 1948) is a Swiss banker who served as chief executive officer of Deutsche Bank from 2002 to 2012, and who was for a decade the most prominent and the most contested figure in European banking.
Ackermann took charge of Germany's largest bank with a declared objective of raising its return on equity to 25 percent before tax, a target he pursued by expanding the investment banking operations built in London and New York around the acquisitions of Morgan Grenfell and Bankers Trust, and at the expense of the traditional relationship banking that had made Deutsche Bank the central institution of the German corporate economy. The target was reached in 2005. The strategy made Deutsche Bank one of the largest investment banks in the world and, by the measure of its balance sheet relative to its equity, one of the most heavily leveraged.
He was the first non-German to lead the bank, and his tenure was marked from the outset by a conflict with German public opinion over what a bank is for. That conflict was crystallized in the Mannesmann trial, in which Ackermann and five others were prosecuted over bonus payments of some €57 million approved when Vodafone acquired Mannesmann in 2000. Photographed on the opening day of the trial in 2004 making a V sign toward the press, he produced an image that was reproduced for years afterwards as a symbol of executive indifference; he was acquitted that year, the acquittal was overturned on appeal, and the retrial ended in 2006 with the proceedings discontinued in exchange for a payment.
During the financial crisis of 2007–2008, Ackermann declined to take capital from the German government's bank rescue fund, saying that he would be ashamed if Deutsche Bank accepted state money — a remark that was widely resented in Germany when the wider costs of the crisis became apparent, and that was complicated by the substantial sums the bank received as a counterparty in the American rescue of AIG. As chairman of the Institute of International Finance he then led the negotiations between private creditors and European governments over the restructuring of Greek sovereign debt, the largest such restructuring in history, concluded in 2012.
He handed the chief executive's role to Anshu Jain and Jürgen Fitschen in May 2012. He subsequently chaired the Bank of Cyprus following its recapitalization, and has held board positions at Siemens, Shell and Renova Management.
Background: Deutsche Bank and German banking
Ackermann's tenure is difficult to assess without the institution he inherited, which occupied a position in its national economy that has no close equivalent elsewhere.
The Hausbank and Deutschland AG
Deutsche Bank was founded in 1870 to finance German foreign trade, and by the twentieth century had become the principal Hausbank of German industry: the institution that lent to a company across cycles, held equity in it, placed its own executives on its supervisory board, and expected to be consulted on major decisions.
The resulting structure, known as Deutschland AG, was a dense network of cross-shareholdings and interlocking supervisory board seats binding the large banks, insurers and industrial companies together. Deutsche Bank sat at its centre, holding stakes in Daimler-Benz, Allianz, Munich Re and others, and its chief executive was a figure of national economic significance rather than merely a company officer.
The arrangement had recognized advantages: it insulated German companies from short-term capital market pressure and supported the long investment horizons associated with German manufacturing. It also concentrated an unusual degree of influence in a small number of unelected hands, and by the 1990s was widely criticized as an obstacle to competition and to the development of German capital markets.
The turn to investment banking
Deutsche Bank began building an investment bank outside Germany in the late 1980s, acquiring the London merchant bank Morgan Grenfell in 1989 and the American institution Bankers Trust in 1999, and recruiting entire teams from competitors — most consequentially the group led by Edson Mitchell from Merrill Lynch in 1995, which included Anshu Jain.
The effect was to create, inside a German universal bank, a large trading and capital markets business run from London and New York on Anglo-American terms, with compensation practices to match. The tension between that business and the bank's German identity — in culture, in pay, and in the question of which activity the institution existed to perform — is the central fact of Deutsche Bank's modern history and the source of most of the controversy attaching to Ackermann.
Cross-shareholdings were progressively unwound after a 2002 change in German tax law removed the capital gains charge on the disposal of corporate stakes, dissolving much of Deutschland AG during Ackermann's early years in charge.
Rolf-Ernst Breuer
Ackermann's immediate predecessor, Rolf-Ernst Breuer, led the bank from 1997 to 2002 and completed the Bankers Trust acquisition. His tenure ended under the shadow of remarks he made in a television interview in February 2002 about the creditworthiness of the media entrepreneur Leo Kirch, whose group collapsed shortly afterwards; the resulting litigation ran for more than a decade, cost Deutsche Bank a settlement of about €925 million in 2014, and generated criminal proceedings against Breuer, Ackermann and others over statements made to the court. Ackermann and his co-defendants were acquitted in 2016.
Early life and education
Josef Meinrad Ackermann was born on 7 February 1948 in Walenstadt, in the canton of St. Gallen in eastern Switzerland, and was raised in the nearby village of Mels in a Catholic household. His father was a country doctor.
He studied economics and social sciences at the University of St. Gallen, remained there as a research assistant in the department of economics, and took a doctorate in economics with a dissertation on the theory of money.
He completed Swiss military service and reached the rank of colonel in the Swiss Army, a background frequently noted in profiles as consistent with a manner colleagues described as formal and disciplined.
Credit Suisse
Ackermann joined Credit Suisse in 1977 and spent nineteen years there, rising through corporate banking and international operations to become president of the executive board in 1993.
He left in 1996 after a disagreement over strategy and structure with Rainer Gut, the bank's chairman, concerning the integration of the investment bank CS First Boston and the shape of the group. The departure of a president at that level was unusual, and it made him available at the moment Deutsche Bank was assembling the management for its own investment banking expansion.
Deutsche Bank
Board member, 1996–2002
Ackermann joined Deutsche Bank's management board, the Vorstand, in 1996, with responsibility for the investment banking division. He therefore had charge of the business built around Morgan Grenfell and, from 1999, Bankers Trust, and of the London trading operation staffed largely by recruits from American firms.
The period established his working relationship with Anshu Jain, whose fixed income and derivatives business became the principal engine of the bank's profits and, later, of its difficulties.
Chief executive, 2002
Ackermann became spokesman of the management board in May 2002, succeeding Breuer, and the role was subsequently converted into a conventional chief executive position — a change of some significance, since the German Vorstand model is formally collegiate and the Sprecher is first among equals rather than a chief executive in the Anglo-American sense. The restructuring concentrated authority in a way German corporate practice had not previously permitted, and was itself a subject of criticism.
He was the first person from outside Germany to lead the bank in its history.
The 25 percent target
The defining commitment of Ackermann's tenure was a public target of 25 percent pre-tax return on equity, announced early and pursued for a decade.
The figure was chosen as the level at which Deutsche Bank would be competitive with the American investment banks against which it had chosen to compete, and it functioned as an organizing constraint on everything else: businesses that could not earn it were candidates for exit, and the activities that could earn it reliably were trading, structuring and leveraged finance rather than corporate lending or retail banking.
The bank reported achieving the target in 2005. Critics argued from the outset that a 25 percent return on equity in a business as competitive as wholesale banking is achievable principally by increasing leverage, and that the target therefore described a risk position rather than a performance. Deutsche Bank's ratio of assets to equity was among the highest of any large bank in the world in the years before 2008.
Ackermann's defence was that the target was calculated before tax and on a definition of equity that made international comparison meaningful, that the bank's risk was managed through hedging rather than through the size of the balance sheet, and that a European bank that did not match American returns would be unable to retain the people or the clients required to compete at all.
Restructuring and job cuts
In February 2005, on the same day that Deutsche Bank announced a substantial increase in profits, Ackermann announced the elimination of 6,400 jobs, a large proportion of them in Germany.
The juxtaposition produced a political reaction of unusual intensity, including criticism from the chancellor's office, and it became the standing illustration in German public debate of the argument that shareholder-oriented management had displaced the obligations a Hausbank owed to its country. Ackermann's position — that the bank competed internationally and could not maintain uncompetitive costs because its headquarters were in Frankfurt — was not one German public opinion accepted.
The Mannesmann trial
The proceedings that defined Ackermann's public image in Germany concerned a company he did not work for.
Background
Vodafone acquired the German engineering and telecommunications group Mannesmann in 2000, after a hostile bid, in what was then the largest takeover in corporate history. The Mannesmann supervisory board, of which Ackermann was a member in his capacity as a Deutsche Bank executive, approved appreciation awards and pension payments to departing executives totalling some €57 million, of which the largest went to the chief executive Klaus Esser.
Prosecutors alleged that the payments constituted a breach of trust against Mannesmann's shareholders under German law, on the ground that they were granted after the transaction and therefore could not have served the company by incentivizing anything.
The trial
The trial opened in Düsseldorf in January 2004 with six defendants, including Ackermann and the trade union leader Klaus Zwickel.
On the opening day, Ackermann was photographed making a V sign with his fingers toward the assembled press. The gesture was intended, he said afterwards, to signal confidence to colleagues rather than defiance, but the photograph was published across Germany and reproduced for years as a symbol of executive contempt for public opinion. He later described it as the greatest mistake of his professional life.
The court acquitted all defendants in July 2004, holding that the payments, although improper, did not meet the threshold for criminal breach of trust.
Appeal and settlement
The Federal Court of Justice upheld the prosecution's appeal in December 2005 and ordered a retrial, holding that the lower court had applied the law too narrowly.
The retrial opened in October 2006 and was discontinued the following month under a provision of German criminal procedure permitting termination against payment where guilt is not established. Ackermann paid €3.2 million; the total across the defendants was about €5.8 million. The discontinuance is not a conviction and does not establish guilt, and Ackermann has consistently maintained that the payments were lawful.
The case remains a reference point in German debate on executive pay, and it established for the remainder of Ackermann's career an image he was unable to displace.
The financial crisis
Deutsche Bank's position
Deutsche Bank entered the crisis of 2007–2008 with a very large balance sheet relative to its capital and substantial exposure to structured credit, leveraged finance and commercial property, and with a business model that depended on continuous access to wholesale funding markets.
It also had, in some respects, a better crisis than several competitors. Parts of the trading operation had reduced exposure to American subprime mortgages before the market turned, and the bank reported a profit for 2007. It reported a loss for 2008, its first in more than half a century.
Declining state capital
The German government established a rescue fund, SoFFin, in October 2008, offering capital and guarantees to banks. Ackermann said publicly that he would be ashamed if Deutsche Bank were to take money from the state, and the bank declined to draw capital from the fund; it raised capital privately instead.
The remark was intended as a statement of institutional strength and was received in Germany as an insult, particularly once the aggregate cost of stabilizing the German banking system — borne largely on account of the state-owned Landesbanken and of Hypo Real Estate — became apparent. Critics observed that Deutsche Bank had benefited substantially from public money regardless: it was among the largest counterparties paid out at par in the United States government's rescue of AIG, receiving billions of dollars that it would not have recovered had AIG been permitted to fail, and it made extensive use of central bank liquidity facilities available to the market generally.
Ackermann's position was that the bank had not required and had not taken direct state capital, which is accurate, and that the AIG payments were contractual settlements from a private counterparty rather than assistance to Deutsche Bank. The distinction is technically sound and did not affect the public reception.
Advising the government
Ackermann was simultaneously among the bankers most closely involved in advising the German government during the crisis, participating in the rescue of Hypo Real Estate and in the discussions that produced the state guarantee of retail deposits announced in October 2008.
The combination — a banker declining state support for his own institution while helping to design the support given to others, and while remaining Germany's most prominent critic of regulation — made him a figure of unusual political salience, and he was reported to have had regular access to the chancellery.
The eurozone crisis
The Institute of International Finance
Ackermann became chairman of the board of the Institute of International Finance, the association of the world's large private financial institutions, and in that capacity led the private creditors' side of the negotiations over Greek sovereign debt.
The problem was that Greek debt was held substantially by European banks, and that a write-down large enough to make Greece solvent would damage the institutions that European governments had spent the preceding two years stabilizing. The negotiations therefore involved a small number of principals attempting to determine the terms on which private creditors would accept losses, in parallel with, and to some degree in place of, the intergovernmental process.
The restructuring concluded in early 2012 involved a nominal reduction of about 53.5 percent and an economic loss to private holders of roughly three-quarters of the value of their claims, covering more than €200 billion of debt. It was the largest sovereign debt restructuring ever undertaken.
Public statements
Ackermann was unusually willing to speak publicly during the crisis, and his statements moved markets on several occasions.
He said publicly in 2011 that a number of European banks would not survive a mark-to-market revaluation of their sovereign holdings, and questioned Greece's capacity to repay in full — remarks that were accurate as analysis and that were criticized as destabilizing coming from the chairman of the creditors' association negotiating the outcome.
Days after his retirement, in a speech to the Atlantic Council on the eve of a G7 call on the European debt crisis, he said that Germany would ultimately take whatever steps were necessary to keep the eurozone intact, and that it was moving cautiously only because it feared that peripheral countries would abandon reform if Berlin were seen to guarantee everything.
Departure and later career
Succession
Ackermann agreed at the end of 2009 to remain as chief executive for a further three years. There had been an expectation that he would move to the chairmanship of Deutsche Bank's supervisory board, an arrangement common in German practice; the plan was abandoned after opposition from investors and governance advisers, and Paul Achleitner took the chair instead.
He handed over at the annual general meeting in May 2012 to co-chief executives Anshu Jain and Jürgen Fitschen — a divided structure intended to balance the investment bank with the German business, and one that did not prove durable.
The bank's subsequent decade was severe: losses, litigation over interest-rate benchmark manipulation, sanctions, money laundering and mis-selling, multiple restructurings, and a share price that fell far below its level at Ackermann's departure. How much of this is attributable to his tenure is the central question in assessments of it.
Bank of Cyprus
In November 2014 Ackermann was elected chairman of the board of the Bank of Cyprus, on the proposal of Wilbur Ross, who had become a major shareholder following the bank's recapitalization after the Cypriot banking crisis of 2013 and who later served as United States Secretary of Commerce.
He resigned in 2019.
Other positions
Ackermann served as second deputy chairman of the supervisory board of Siemens, announcing his resignation in September 2013; as a non-executive director of Shell; as a director of Renova Management, part of Viktor Vekselberg's Renova Group; and as a non-executive director of Vodafone from 2000 to 2002.
He has been a member of the Group of Thirty and of the steering committee of the Bilderberg Group, attending its meetings through the 2010s, and served as chairman of the board of the World Economic Forum. He has held visiting professorships at the London School of Economics and at Goethe University Frankfurt, and presided over the board of trustees of the St. Gallen Foundation for International Studies and the board of patrons of the Institute for Corporate Culture Affairs. He is an advisory board member of Macro Hive.
Trump-related reporting
The New York Times reported in March 2019 that Ackermann had been aware of the business relationship between Deutsche Bank's New York branch and Donald Trump, who was for many years among the bank's more substantial private clients at a time when other institutions had ceased to lend to him.
Compensation
Ackermann's compensation was, in the German context, exceptional and politically consequential. He earned €9.4 million in 2009, of which €8.2 million was bonus, and €8.8 million in 2010, of which €7.1 million was bonus, according to reporting by Financial Times Deutschland.
The figures were substantially below those of comparable American bank chief executives and substantially above anything customary in German industry, and the gap was the point: the argument that Deutsche Bank had to pay international rates to compete internationally was precisely the argument its German critics rejected.
Management style and views
Ackermann's public positions were consistent over two decades.
He argued that European banks had to be able to compete with American institutions on their own terms, and that this required scale, capital-market capability and compensation practices that Continental European convention did not accommodate. He resisted the fragmentation of universal banking into separate retail and investment institutions, opposing the structural separation proposals advanced after the crisis, on the ground that a diversified bank is a safer bank.
He was among the more prominent critics of the post-crisis regulatory response, arguing that capital and liquidity requirements imposed too quickly would constrain lending and slow recovery — a position that was standard among bank executives and that was received with limited sympathy given the circumstances in which it was advanced.
On governance he was an advocate of shareholder value in a country whose corporate model had been explicitly built on other principles, and much of the friction of his tenure follows from that.
Colleagues described a formal, precise and demanding manner, and a capacity for detail unusual at his level. He was reported to work continuously, and his willingness to speak publicly on subjects other bank executives avoided made him, for a decade, the person European media approached first on any question concerning banking.
Personal life
Ackermann is married to Pirkko Mölsä, a Finnish national, and has one daughter. He holds Swiss citizenship and has retained his residence in Switzerland throughout his career in Germany.
He was appointed a colonel in the Swiss Army.
Assessment
Assessments of Ackermann divide on whether the outcome of the decade following his departure should be attributed to him.
The case in his favour is that he took a bank whose profitability lagged its international competitors and made it one of the largest capital markets institutions in the world; that Deutsche Bank passed through the crisis without direct state capital, which no other large German bank of comparable exposure managed; that his handling of the Greek restructuring achieved a settlement that a disorderly default would not have; and that the litigation which subsequently damaged the bank concerned conduct in businesses that predated his tenure or that were run by others.
The case against is that the 25 percent return target could only be met through leverage and through activities whose risks were understated, that it drove the culture of the trading businesses in which the later misconduct occurred, that the bank's balance sheet at the point of his departure was too large for its capital, and that the losses, fines and restructurings of the following decade were the deferred cost of the returns reported during his own.
A third view, common among German commentators, is that the substantive question is not financial but institutional: that Deutsche Bank under Ackermann ceased to be a German bank in any sense other than domicile, that the Hausbank relationship with German industry was abandoned in favour of a business conducted from London and New York, and that the institution has never recovered a settled account of what it exists to do.
See also
References