Shareholder Vote

Impotent Rage at Deutsche Bank

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Shareholders rejected a proposed pay package for Deutsche Bank executives on Thursday, but it was unclear whether the bank would significantly reduce compensation.
  • Why it matters

    Why it matters

    Shareholders argued Thursday that executives need to share more of the burden for the bank’s record loss in 2015 and a restructuring that is likely to carry on for many more years.

  • Facts


    • Deutsche Bank held its annual meeting Thursday, with some 10,000 shareholders registering and about 5,000 filling a hall in Frankfurt’s Festhalle.
    • The bank posted a record €6.8-billion loss in 2015 and has seen its share price halved over the past year to around €14 per share.
    • CEO John Cryan on Thursday admitted the bank remains caught up in 7,800 legal cases, though the vast majority were small-sum disputes with clients in Germany.
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In a rare setback, the shareholders of Deutsche Bank on Thursday rejected the bank’s proposed lavish pay structure for its top executives in a public vote, which could force managers to make further cuts in compensation to the men and women running Germany’s loss-making financial flagship.

A usually routine annual vote over approving the compensation plan for top managers received only 48 percent approval. In another slap at managers, the head of the institution’s supervisory board, Paul Achleitner, was supported by only 87 percent of shareholders — usually, overseers receive 95 percent or more of the vote.

But the rejection of the pay package was the only concrete expression of shareholder frustration at the bank’s tenuous position — it reported a record €6.8 billion ($7.7 billion) loss for 2015 and its shares have plummeted by half in a year.

Instead, investors gave the bank and its leadership more time to engineer a turnaround.

Shareholders narrowly rejected a move to appoint an independent investigator to look into whether top managers, including Mr. Achleitner, were involved in impeding U.S. and British investigations into the bank’s manipulation of interest rate benchmarks as part of a global cartel.

Deutsche Bank was fined $2.5 billion last year for the actions of a group of currency traders, and investigators criticized the bank for trying to hinder the probes. Last month, the supervisory board summarily dismissed the head of its “integrity” committee, Georg Thoma, who had tried to get to the bottom of the scandal.

While many investors at Frankfurt’s Festhalle aimed their fire at Mr. Achleitner, a former Goldman Sachs Germany banker who has been at the helm since 2012, most seemed resolved to the fact that replacing him would cause only more problems for the fragile German bank, one of the country’s biggest private employers.

“You can’t really blame the executives for much at this point. The bank is stuck with its problems of the past,” Ingo Speich, a fund manager with Union Investment, one of Deutsche’s top 20 shareholders, told Handelsblatt Global Edition. “Forcing out Achleitner now would cause a massive destabilization of the bank.”

And so, shareholders turned to the next best thing – executive pay. But even that rejection could be ignored by the bank. The shareholder votes are non-binding. Managers did not make any promise after the vote that they would signficantly backtrack from the pay structure they had proposed.

Mr. Achleitner indicated Thursday that he would respect the shareholders’ decision and go back to the drawing board, though exactly how the bank will change executive pay as a result of the vote remains to be seen.

“I hope the vote will be strong enough that the supervisory board will have to rethink,” Hans-Martin Buhlmann, head of the German Association of Institutional Shareholders, told Handelsblatt Global Edition.

“I hope the vote will be strong enough that the supervisory board will have to rethink.”

Hans-Martin Buhlmann, Association of Institutional Shareholders

If they do listen to shareholders, the vote could force the supervisory board to cut fixed income for managers. Investors expressed anger throughout the day that executives have not faced up to the bank’s losses, with many pointing out that while bonuses were scrapped for 2015, fixed salaries had risen more than 10 percent for bank staff.

The new executive pay package also would have seen potentially higher bonuses for division heads – bonuses that could even result in some lower executives getting paid more than the chief executive, John Cryan, who is set to earn a fixed salary of €3.8 million ($4.26 million) and total compensation including performance bonuses that could reach nearly €10 million.

Other executives will earn €2.4 million in fixed salary, but that could climb to more than €10 million for some division heads if they receieve all bonuses included in the new system.

Hans-Christoph Hirt of the British fund Hermes, a top 20 shareholder, said the bank’s compensation structure lacked transparency and gave the supervisory board too much wiggle room to set bonuses in the coming years. He called for a greater shift towards “long-term value creation.”

This, while dividends for shareholders had been scrapped for 2015 and 2016 – the first time in more than four decades that the bank took such a step after a record €6.8-billion loss last year.

“Who is being made responsible for the losses?” asked Andreas Thomea, a fund manager with Deka Investment, another top 20 shareholder, which voted to reject the executive pay package.

In the end, shareholders narrowly rejected the bank’s executive compensation structure, with just 48 percent in favor in a non-binding vote.

118 Deutsche Bank - Neu 2016-05-13-01

On the positive side, the bank’s executives escaped a series of potentially embarrassing investigations into their past actions. Shareholders narrowly rejected a motion for an independent probe into whether executives had obstructed investigations by regulators, who have fined the bank billions over the past few years for manipulating markets and repeatedly criticized the bank for a lack of cooperation.

The bank has paid out more than €12 billion in legal settlements since 2012. Mr. Cryan said the high sums were “unacceptable,” but on Thursday admitted the bank remains caught up in 7,800 legal cases, not including its retail subsidiary Postbank. The vast majority were small-sum legal disputes in Germany, he said.

“You say you didn’t want to drive Mr. Breuer into financial ruin, but how often did you consider your clients’ financial ruin when you considered compensation?”

Small Shareholder

The anger over Deutsche Bank’s billions in legal fees over the past few years was especially loud during Thursday’s meeting – and often targeted directly at the bank’s past executives. Former chief executive Rolf Breuer came under special fire after reaching a €3.2-million settlement with the bank for his role in a Kirch media scandal that cost the bank €925 million.

Michael Bohndorf, a private shareholder, called the Breuer settlement “peanuts.”

“You say you didn’t want to drive Mr. Breuer into financial ruin, but how often did you consider your clients’ financial ruin when you considered compensation?,” one small shareholder shouted to loud applause.

Despite the rancor, at the end of a 12-hour annual meeting in Frankfurt, shareholders overwhelmingly backed their new chief executive, Mr. Cryan, who joined the bank last July, with 98.5 percent issuing a vote of confidence in the bank’s management team.

By contrast, the bank’s non-executive chairman, Mr. Achleitner, received a mild rebuke from investors who spent much of the day targeting Deutsche’s supervisors for failing to turn around the troubled bank sooner and avert the billions in legal costs over the past few years.

Mr. Achleitner was backed by 87 percent of shareholders – a low number for annual meetings in Germany, where management and supervisors typically get the backing of 95 percent or more of their stockholders. The supervisory board sets overall strategy and can hire and fire management in German companies.

While the vote is not enough to topple Mr. Achleitner, most expect he is unlikely to be granted a renewed contract when his term expires at the end of next year.


Christopher Cermak is a financial editor with Handelsblatt Global Edition in Berlin. He has covered finance and economics in Frankfurt and Washington DC. Yasmin Osman and Michael Maisch of Handelsblatt in Frankfurt also contributed to this story. To contact the author:

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