Frankfurt Stock Exchange

Another leadership change at Deutsche Börse?

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Willl Joachim Faber follow Carsten Kengeter out the door? Source: T. Everke for Handelsblatt

Deutsche Börse, Germany’s leading stock exchange operator in Frankfurt, often made headlines in 2017, but not for reasons investors in the company would have liked. In March, European Commission antitrust regulators blocked a merger between Deutsche Börse and the London Stock Exchange. Around the same time, CEO Carsten Kengeter, came under investigation by state prosecutors for suspected insider trading. Mr. Kengeter maintains his innocence, but in October, under the cloud of the investigation, he announced he would resign from his post.

Investors are hoping that Mr. Kengeter’s replacement, Theodor Weimer, the CEO of Munich’s HypoVereinsbank, will bring renewed stability to Deutsche Börse when he takes the reins at the beginning of 2018. But the possibility of continued uncertainty over the composition of the company’s leadership ranks – and the continued fallout over the insider trading allegations – could mean that the turmoil at Deutsche Börse is far from over.

Much of that uncertainty revolves around the future of Joachim Faber, the non-executive chairman, who is considered a mastermind of the ill-fated tie-up with the London Stock Exchange and long a supporter of the outgoing CEO, Mr. Kengeter. Some shareholders believe that, on account of the recent tumult, the 67-year-old Mr. Faber should not be re-elected when his term expires next year. On the other hand, with Mr. Kengeter already on his way out, other shareholders worry that too much change, too quickly, will create chaos inside the executive suite.

It now appears that the two sides could be working on a compromise regarding Mr. Faber’s future with the company. Sources told Handelsblatt that investors met with Mr. Faber in London and discussed the possibility of him staying on as chairman, but only temporarily.  Under this plan, shareholders would reelect him to a three-year term at their annual meeting in May, but Mr. Faber would likely step down in 2019. The transitional period would allow the company’s supervisory board to lay the groundwork for his successor, according to sources familiar with the talks.

A final decision has yet to be made, according to those familiar with the matter, who said Mr. Faber agreed to further talks with investors in January. Deutsche Börse declined to comment, but its shareholders seemed to welcome the proposal. “It’s a reasonable compromise between a whole new term and an immediate departure,” one of the company’s largest shareholders told Handelsblatt. “It’s a solution that likely everyone can agree on.”

Mr. Faber had worked closely with Mr. Kengeter on plans for the merger with the London Stock Exchange, which would have created one of the world’s largest securities and derivatives market operators.

Mr. Faber had worked closely with Mr. Kengeter on plans for the merger with the London Stock Exchange, which would have created one of the world’s largest securities and derivatives market operators. The tie-up was ultimately blocked by the European Commission on antitrust grounds, but not before costing Deutsche Börse some €76.5 million ($90.2 million).

Those financial losses, of course, were far from the only fallout from the merger attempt. In December 2015, Mr. Kengeter purchased €4.5 million worth of company shares as part of an executive compensation program. The price of those shares soared two months later, after news of the planned merger deal went public. The timing of the purchase led prosecutors in Frankfurt to launch the insider trading investigation.

Mr. Faber, who had designed the compensation program for Mr. Kengeter (with the approval of the supervisory board and shareholders), also came under criticism in connection with the insider trading allegations. Both Mr. Faber and Mr. Kengeter deny any wrongdoing, but to some investors, Mr. Faber erred in standing by the company’s embattled chief executive for as long as he did. Mr. Kengeter only announced his resignation in October, nearly nine months after news of the investigation came to light.

Talk of a potential replacement for Mr. Faber has centered on Gerd Häusler, a veteran of the International Monetary Fund, according to sources. Mr. Häusler has served on a number of supervisory boards during his career, most recently as chairman at Münchener Landesbank. Even without Mr. Faber’s departure, there will be plenty of changes coming to the supervisory board next year. Three members of the board have already served for 12 years, the maximum time allowed according to Deutsche Börse’s own regulations, and another member retired in October.

Andreas Kröner covers banks and financial markets in Frankfurt. Daniel Schäfer is head of Handelsblatt’s finance pages and based in Frankfurt. Katharina Slodczyk is Handelsblatt’s London correspondent. Amanda Price in New York City adapted this article into English for Handelsblatt Global Edition. To contact the authors: kröner@handelsblatt.com, d.schaefer@handelsblatt.com, slodczyk@handelsblatt.com.

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