Joachim Faber

Bourse Chairman Feels the Heat

  • Why it matters

    Why it matters

    Deutsche Börse is grappling for a new growth strategy following the collapsae of its merger with the London Stock Exchange in the wake of the Brexit vote.

  • Facts

    Facts

    • Deutsche Börse’s failed merger with the London Stock Exchange cost it around €76.5 million ($85.4 million).
    • The deal went bust after Brexit. Now it could cost the German stock exchange operator’s chief executive and its supervisory board chairman their jobs.
    • Deutsche Börse CEO Carsten Kengeter is under investigation for alleged insider trading, a charge one shareholder said was “like a bank manager being investigated for counterfeiting money.”
    •  
  • Audio

    Audio

  • Pdf
Kengeter, CEO of Deutsche Boerse attends the initial public offering of Scale at the Frankfurt stock exchange in Frankfurt,
Uneasy times for the two men leading Deutsche Börse. Source: Reuters

When Joachim Faber agreed to start working for Deutsche Börse as its supervisory board chairman back in 2012, he was already nearing retirement. He could have declined, opting instead to devote more time to his passion of rowing after a long career in banking and insurance.

But thanks to Deutsche Börse’s failed bid to merge with the London Stock Exchange – and all the hostility it sowed among shareholders – Mr. Faber now risks ending his career on a low note.

When Mr. Faber, 67, addressed the thousands of Deutsche Börse investors who had gathered for the company’s annual meeting on Wednesday, the hostile silence was deafening.

No one applauded at the beginning of his remarks, nor when he thanked his many employees for their hard work. It was evident that the botched alliance hasn’t just put Deutsche Börse Chief Executive Carsten Kengeter in the firing line, but Mr. Faber as well.

On Wednesday, shareholders peppered Mr. Faber with questions, knowing full well that he is more than just the company’s chief inspector. It was his idea to create one of the world’s largest securities and derivatives market operators by merging with LSE, and he was the one who hired Mr. Kengeter to help him do it.

After that deal went south, Mr. Faber was seen by many shareholders as having secured an overly generous stock option package for Mr. Kengeter, who now faces an insider trading investigation. Two months before news of the planned merger went public, the chief executive acquired a number of shares in his company – shares that quickly rose in value. Now, Mr. Kengeter is being investigated by Frankfurt prosecutors on suspicion of having used his knowledge of the deal to gain a trading advantage. He has denied any wrongdoing.

The failed merger ended up costing Deutsche Börse around €76.5 million.

“The sheer fact that there is an investigation is an embarrassment,” said Andreas Lang from the shareholder association DSW. “An executive at a stock exchange being investigated for insider trading is like a bank manager being investigated for counterfeiting money.”

Deutsche Börse isn’t the only company keeping Mr. Faber busy at the moment. He also sits on the boards of the British banking giant HSBC and Coty, an American maker of beauty products.

Perhaps the biggest feather in Mr. Faber’s cap, however, came from his time as a manager at Citigroup, for which he worked in Britain, the United States and Japan. At Allianz, he presided over the huge expansion of asset management company Allianz Global Investors, providing the insurer with a new business division.

When Mr. Faber began working for Deutsche Börse five years ago, he quickly discovered that the same fate awaited him as his friend and colleague, Paul Achleitner, who had recently taken a job as the chief supervisor at Deutsche Bank. Both men had agreed to their new positions thinking neither would take up more than three days a week. It wasn’t long before they realized they had inadvertently signed up for full-time jobs.

But as demanding as his job at Deutsche Börse is, Mr. Faber hardly spends any time at his office in the company’s glass-and-steel headquarters in Eschborn, just outside Frankfurt. Usually, he’s either on the road or working from his other office in Munich, which he shares with Mr. Achleitner, his wife Ann-Kristin, the former Siemens CEO Peter Löscher and Michael Diekmann, the supervisory board chairman at Allianz. Put together, it’s one of the most influential office spaces in all of corporate Germany.

Mr. Kengeter received only 84 percent support from shareholders on Wednesday. Mr. Faber got 87 percent – a clear signal of displeasure given the communist levels of support usually awarded to managers.

The soft-spoken Mr. Faber, who avoids the media spotlight whenever he can, could not have expected the wave of criticism that engulfed him once the merger deal with LSE went bust.

The failed merger ended up costing Deutsche Börse around €76.5 million ($85.4 million). Of that, €33.4 million were used to pay off legal fees, €8 million was spent on public communication for the deal and €5.9 million went to the consulting firm McKinsey.

Now, Mr. Faber’s and Mr. Kengeter’s fates at the stock market exchange are closely intertwined.

Several big shareholders have already signaled that they want Mr. Kengeter to step down if the insider probe comes to trial. Mr. Kengeter was exonerated with only 84 percent of the vote at Wednesday’s meeting while Mr. Faber got 87 percent – a clear signal of displeasure given that managers tend to get communist levels of support close to 100 percent at shareholder meetings.

Mr. Faber admitted that German political and regulatory support for the deal started to wane after the Brexit vote last June, when LSE insisted that the merged company still be headquartered solely in London.

“Unfortunately, we lost a lot of popular support in the Rhein-Main area,” Mr. Faber said, referring to the area around Frankfurt where Deutsche Börse is located.

Shortly before the Britons’ fateful decision to leave the European Union, Mr. Faber said he had warned that a failed merger could paint Deutsche Börse into a corner strategically. At the time, many people involved in the deal interpreted this as mere saber-rattling. Today, however, colleagues of Mr. Faber’s say this is still one of his biggest concerns. Deutsche Börse is now grappling to find a new strategy that doesn’t involve mega-acquisitions.

 

Michael Brächer is a financial editor in the investment team in Frankfurt. Daniel Schäfer is head of Handelsblatt’s finance pages. Jakob Blume is a reporter at Handelsblatt and Wirstschaftswoche, based in Dusseldorf. To contact the authors: J.Blume@vhb.de, braecher@handelsblatt.com, d.schaefer@handelsblatt.com

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!