Germany's Unsung Banking Champion

Blick auf die Stadt mit Skyline bei Dämmerung und erleuchteten Hochhäusern, Innenstadt, Frankfurt am Main, Hessen, Deutschland, Europa iblcag03999623.jpg Glance on the City with Skyline at Dusk and enlightened High-rise buildings Inner city Frankfurt at Main Hesse Germany Europe iblcag03999623 JPG
Commerzbank wins on height, but Deutsche Bank has two towers.
  • Why it matters

    Why it matters

    In a test of Germany’s two largest banks performed by Handelsblatt, Commerzbank, the nation’s No. 2, came out on top in 2015.

  • Facts


    • Deutsche Bank will pay no dividend in 2016 for the first time in the post-war era; Commerzbank recently announced its first dividend since the financial crisis.
    • Deutsche Bank has been less of a burden on German taxpayers than Commerzbank, but Commerzbank prevails in workforce efficiency.
    • Both institutions have created internal bad banks, separating their risky, under-performing or undesired assets from the good ones.
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Their headquarters tower over the Frankfurt skyline – fitting for the two largest banks in Germany.

For many years, Deutsche Bank had the clear upper hand in the battle of the German banks. Germany’s largest bank expanded internationally to become one of the kings of investment banking. When the financial crisis hit in 2008, it proudly escaped a bailout from the Germany government, unlike many of its peers.

Commerzbank, Germany’s second-largest bank, looked like the under-performing sibling that keeps running into trouble. The bank needed a bailout of some €18.2 billion from the German government after its own efforts to expand – including the acquisition of rival Dresdner Bank – nearly brought the bank to its knees in the 2008-2009 crisis years. Speculation that the bank would be taken over by a competitor have swirled for years.

Now, Commerzbank Chief Executive Martin Blessing has announced he will leave the bank next year – just when the tables seem to have turned. Deutsche Bank, which since July has had a new chief executive in John Cryan, is the one trying to dig itself out of a heap of trouble.

Handelsblatt decided that Mr. Blessing’s departure marked the perfect time to have a little fun. We have rated the two banks in a sort of soccer grudge match, according to a range of categories. Let’s play ball!


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Commerzbank could hardly have chosen a stranger time to pay out its first dividend since Martin Blessing took the helm in May 2008, which it plans to do next year. At 20 euro cents per share, that would be the middle of the pack for the DAX index of Germany’s top 30 blue-chip companies, according to analysts.

But middle of the pack is still much better than dead last, which is what Deutsche Bank will be next year, when it becomes the only company listed on the DAX without a dividend payout. After paying 75 euro cents per share for each of the previous six years, 2016 will be the first time in the post-World War II era that Deutsche Bank shareholders will receive no dividend. Even amid the 2008 financial crisis, when Deutsche Bank posted a loss of nearly €9 billion, or $9.9 billion, there was still at least a modest dividend.

Commerzbank is the clear winner here, since Deutsche Bank will pay zero dividends for the next two years.


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Taxpayer Burden

Clearly, Commerzbank has placed bigger burdens on state coffers than Deutsche Bank ever did. Most of the €18.2 billion in state aid it received in 2008 and 2009 has since been repaid, but the German government still owns a 15.6-percent share. Today, that share is worth just €2.1 billion, compared to the €5.1 billion Germany paid for it.

Deutsche Bank also profited from the state’s support of banks, but only indirectly. After all, financial markets bent, but they did not break.

Deutsche Bank scores!


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The View from Shareholders

For years, environmental protests and disgruntled small shareholders have been an annual tradition at Deutsche Bank’s general meetings. But it only turned really ugly for former co-bosses Anshu Jain and Jürgen Fitschen for the first time this year. After getting verbally torched for hours, the co-chief executives had to absorb the worst CEO approval rating in the history of the bank, with just 61 percent of shareholders backing them in a vote. Weeks later, it cost Mr. Jain his job. Mr. Fitschen, too, will retire in May of next year.

Commerzbank’s chief executive was spared such embarrassment, though Mr. Blessing has endured some hard times. Since 2009, the bank’s annual general meetings have featured, above all, angry words from small shareholders. But this year, in view of the dividends they will reap in 2016, they have softened their tone. Commerzbank’s large shareholders, on the other hand, are directing venom towards the bank’s leadership. Because of German Finance Minister Wolfgang Schäuble’s veto, an initiative to boost the cap on bonuses for top managers failed to pass.

It’s a tough head-to-head bout. But Commerzbank wins in a close decision.


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Tackling Bad Banks

In the aftermath of the global financial crisis, both financial institutions have embraced the concept of the internal bad bank, by which they separated their risky, under-performing or undesired assets from the good ones. Commerzbank had already established its internal bad bank in August 2012 under the acronym NCA, or non-core assets, where it dumped bad shipping and real estate loans, as well as government bonds. A few months later, Deutsche Bank launched its Non-Core Operations Unit, or NCOU, where a motley collection of casinos, harbor terminals and complex securities landed.

Which bank was more successful with this strategy?

Based on the riskiness of their assets, Deutsche Bank leads by a hair’s breadth. Through September, Deutsche Bank had slashed its risk-weighted assets to €44 billion from €141 billion originally. But the strategy also cost money, €11 billion to date.

At Commerzbank, which always has needed to keep close watch of its capital resources, it’s been a slower process. Of its once €64.4 billion in risk-weighted assets, €41.7 billion remain. It’s also been hit with €3.7 billion in losses since 2012.

Despite playing a fairly solid game, Commerzbank’s goalie has to retrieve the ball from the net.


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Executive Pay

The days when Martin Blessing’s salary was capped at €500,000 are long gone. But even today, he’s a steal compared to the generous salaries of Deutsche Bank’s bosses. Including his bonus, Mr. Blessing was promised €2.9 million for the past year. Mr. Jain and Mr. Fitschen each earned €6.6 million, including performance-based payments.

Exactly how much John Cryan will earn remains unclear. But for the moment, this goal belongs to Commerzbank.


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Workforce Efficiency

Deutsche Bank’s operating costs are much too high. During ex-chief executive Josef Ackermann’s era, the bank only had to spend 70 cents for every euro it earned, despite its sumptuous salaries. Today it doesn’t look so good. Billions of euros in fines have bloated its cost share to nearly 90 percent.

Now its workforce is being reduced in an effort to cut that share and become more efficient. Commerzbank, with its cost-income ratio of 70 percent, is already well ahead of the game.

Without much strain, that’s an additional point to the team wearing yellow jerseys.


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Earnings Potential

In the tricky question of business model quality, both sides show their technical capabilities. For the first nine months of 2015, Commerzbank posted gross earnings of €7.5 billion. But that came with €213.5 billion in risk-weighted assets.

Deutsche Bank is clearly better at taking advantage of its opportunities. While it is managing nearly double the amount of risk at €408 billion, Deutsche Bank also is generating nearly three times the gross revenue at €20 billion. Profits are another story for the moment, after write-downs led Deutsche Bank to post a record €6 billion loss in the third quarter, but its earnings prospects remain higher.

That’s a point to Deutsche Bank.


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Analyst Ratings

There were times when most analysts rated Commerzbank shares as a “buy.” Today, in light of its quarterly results, 47 percent of analysts recommended buying its stock, while just 19 percent say it’s time to sell.

The outlook is much worse for Deutsche Bank’s shares. While only 19 percent recommend shedding its stock, the percentage of “buy” recommendations is just 29 percent.

This point clearly goes to Commerzbank.


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Representing Shareholders

Commerzbank as the stalwart of shareholder interests? Is this not the same bank that suspiciously increased its capital stock a record nine times, nearly boosting the calculation basis for its stock by 20 times, and severely diluting value for shareholders? That is correct. No one will be able to take the crown of share dilution from Martin Blessing. The repayment of state aid in 2011 and 2013 came only at the cost of shareholders.

Deutsche Bank doesn’t even come close to such antics, although the “blue” bank has been testing shareholders’ patience of late. Since 2008, it has tapped shareholders five times, increasing the number of its shares by a factor of 2.8. The first three capital stock increases between 2008 and 2010 were mostly used for the takeover of retail bank Postbank – a bank it now intends to sell again. The fresh capital increases under Mr. Jain and Mr. Fitschen, totaling €11 billion, are extensively associated with the bank’s seemingly neverending fines.

But Deutsche Bank still hits a penalty shot.


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Entertainment Value

After a hopeful start as a budding star of satire, Commerzbank has faded fast. On one occasion, Martin Blessing was made fun of on a TV show. Another time, a Commerzbank commercial unintentionally ended up in a satirical year in review.

Yet, by now, there is hardly a German comedian left who hasn’t made fun of Deutsche Bank. The hardest-hitting joke of all was TV channel Extra 3’s makeover of the theme song for the cartoon Tom and Jerry into “Deutsche Bank, you are losers!”

This goal is likely a painful one for Deutsche Bank, since its bankers pride themselves in their image as the most clever and best paid of all bankers. But given all that is at stake, a little comedy might do them well.


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Women in Management

Just based on the outside image, one would expect Commerzbank to come out on top in this one. Barely a week goes by without Commerzbank highlighting its efforts to create a solid social environment at the bank, complete with kindergartens. That makes it all the more surprising to find that, when it comes to the quota of women in management, Deutsche Bank has recently leaped ahead.

This is thanks to some recent moves. The bank once dominated by Alpha-male investment bankers recently announced the appointments of Sylvie Matherat and Kim Hammonds to the management board. Commerzbank has no answer, though it has a higher quota of women – at 16 percent – in the tier just below top management. One tier below that, and Deutsche Bank once again comes out in front.

Quite the surprising goal for Deutsche Bank.


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Stability of Leadership Team

Josef Ackermann led Deutsche Bank for a full 10 years. It was an era of calm and harmony at the top of the bank. But since the financial crisis of 2008, the positions of Deutsche Bank’s management board have been passed around like hot potatoes. Managers have left before the end of their terms – of their own free will or forced out by allegations of wrongdoing. Among the high profile recent departures are Anshu Jain, Rainer Neske, Stephan Leithner, Stefan Krause and Henry Ritchotte.

Commerzbank has had its share of managers leave, and of course will be losing its chief executive next year. But then, even John Cryan’s future at Deutsche Bank is not clear. Will he simply aim to steer the bank out of crisis and then move on? Or is he in it for the long haul.

This was a clear goal for Commerzbank.


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In the Eyes of the Law

Sadly for Deutsche Bank, this is quite an easy one. If Deutsche Bank were playing the role of the Godfather, Commerzbank would probably get the spot in Monk.

It’s not that Commerzbank hasn’t had its share of run-ins with the law. Two raids of the bank’s headquarters in Frankfurt were carried out in the past years, once to investigate clients that may have cheated tax authorities, and once over shady accounts at its Luxembourg subsidiary. The raids were done quietly – with many employees not even aware they took place until it was over.

Deutsche Bank can boast four raids in the last few years – twice over the manipulation of trading in carbon emissions certificates and twice over the ongoing trial involving the media empire of the late Leo Kirch. The last raid in 2012 would have made Hollywood proud: 500 police and other officials surrounded the bank’s twin towers in Frankfurt, armed with machine guns. Four Deutsche Bank employees were arrested.

More like an own goal for Deutsche Bank.


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Legal Costs

Given all the raids and high-profile scandals, it’s no wonder that Deutsche Bank has had to set aside more cash to deal with the fallout. Since 2011 alone the bank has paid out some €9 billion for settlements involving mortgages in the United States, the manipulation of the interest-rate benchmark LIBOR and claims by the late Leo Kirch that Deutsche Bank helped drive his once-proud media company into the ground.

Going forward, the legal situation for Deutsche Bank doesn’t really look any better. The biggest concern at the moment involves Russia, where a money-laundering scandal being investigated by U.S. authorities is reportedly being expanded to examine whether the bank also violated U.S. sanctions.

Compared with such a big rap sheet, Commerzbank’s costs pale in comparison. The bank’s own violation of U.S. sanctions against Iran was the biggest blow – $1.2 billion. The bank’s questionable tax dealings in Luxembourg marked a lucky escape – the eventual fine totaled just €17 million.

And the winner is!


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Yasmin Osman is a Handelsblatt editor in Frankfurt, primarily covering Commerzbank and banking supervision. Laura de la Motte, also based in Frankfurt, leads Handelsblatt’s coverage of Deutsche Bank. To contact the authors: and 


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