Blame game

Deutsche Bank chief economist lashes out at former CEO Ackermann

Pointing the finger at Ackermann. Source: Steffen Unger / Handelsblatt

German executives rarely wash their dirty laundry in public. This week was a notable exception, when David Folkerts-Landau, Deutsche Bank’s chief economist (pictured above), accused his former bosses of causing the bank’s current woes by racing hell-for-leather into investment banking.

Mr. Folkerts-Landau, who has been with Deutsche’s investment banking division for over two decades, accused its former CEOs of reckless expansion and of losing control of the ship. “Since the mid-1990s, the bank’s management has left operational and strategic control of its financial markets business to the traders,” he said in an interview with Handelsblatt. The bank is still reeling from the consequences of this “reverse takeover,” the economist said.

Deutsche Bank has accumulated more than €9 billion in losses over the past three years, due chiefly to the woes of its investment banking division. The bank is in the throes of a revamp intended to refocus operations on more stable sources of revenue, such as private and commercial banking and asset management.

“If you hire a plumber to build your house, don't be surprised if it ends up with too many bathrooms.”

David Folkerts-Landau, Deutsche Bank chief economist

Mr. Folkerts-Landau singled out Josef Ackermann, the bank’s flamboyant boss from 2002 to 2012, for particular criticism over his aggressive expansion into investment banking. “Ackermann was (…) fixed on the magic goal of a return on equity of 25 percent before taxes. At that time, however, this could only be achieved by accepting major financial and ethical risks,” said the German-born economist, who has lived for extended periods in Scotland and the US. After the financial crisis, Mr. Ackermann rejected state aid from the German authorities and postponed tackling the bank’s structural problems, Mr. Folkerts-Landau added.

“The difficult truth is, fundamental, strategic decisions made by management and the supervisory board from the mid-1990s through 2012 put the bank in this situation,” Mr. Folkerts-Landau said in the interview. The cause, he added, was a deep misunderstanding of the cultural differences between Anglo-Saxon-style investment banking and Germany’s traditional focus on more conservative activities such as retail.

The economist praised Anshu Jain, Deutsche’s onetime investment banking chief and later co-CEO, for averting the bank’s meltdown during the financial crisis; and “wunderkind” trader Edson Mitchell, whom the Germans poached from Merrill Lynch to boost their global securities trading. But Mr. Mitchell swiftly expanded the trading operations on a massive scale without asking whether that was right for the bank, Mr. Folkerts-Landau said. “If you hire a plumber to build your house, don’t be surprised if it ends up with too many bathrooms,” he quipped.

The economist also recalled how Rolf Breuer, Deutsche’s CEO from 1997 to 2002, hired 2,000 financial traders in the space of two years to play catch-up with American investment banking rivals such as Goldman Sachs, Merrill Lynch and Citigroup.

Fortsetzung Prozess gegen Deutsche-Bank-Manager
Remembers golden days of handsome profits. Source: DPA

On Wednesday, Mr. Ackermann brushed off criticism of his era as Deutsche’s boss, claiming Mr. Folkerts-Landau’s accusations were an attempt to distract from the institution’s later mistakes. They also ignored the fact that Deutsche Bank’s investment banking used to be much more competitive, said the Swiss manager, who is accustomed to defending his record at the Frankfurt-based lender. “When I handed over the bank six years ago, it was making handsome profits, around €4 billion not including investment banking,” Mr. Ackermann told the Neue Züricher Zeitung.

The tiff made for juicy reading in the run-up to Deutsche’s annual shareholders’ meeting on Thursday, when supervisory board chief Paul Achleitner is expected to face a no-confidence vote for what some see as an autocratic leadership style, as well as for the sudden firing of CEO John Cryan last month, whom he replaced with Christian Sewing.

Interestingly, as Deutsche’s new boss, one of Mr. Sewing’s first moves was to announce deep cutbacks in its global investment banking and target savings across the group.

Daniel Schäfer is head of Handelsblatt’s finance section and is based in Frankfurt, while Michael Brächer is Handelsblatt’s Zurich correspondent. Jeremy Gray, an editor at Handelsblatt Global, adapted this story into English. To contact the authors:,

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