The report is only 37 pages long – not even as thick as most newspapers. Yet the letter that Germany’s financial regulator BaFin sent to Deutsche Bank 10 weeks ago could prove to be a heavy burden for the troubled bank. It could even lead to more top managers being fired from their jobs.
Details of the letter have surfaced at a time when Germany’s largest bank was hoping for a fresh start following a series of legal scandals that had damaged both its reputation and bottom line. Deutsche Bank had already last month announced the departure of its two chief executives, Anshu Jain and Jürgen Fitschen, who had become too tainted in the eyes of many to lead a change in the bank’s culture.
The regulator’s report concerns Deutsche Bank’s role in the manipulation of the Libor rate, one of the most important global interest-rate benchmarks. The bank was fined a record $2.5 billion by U.S. and U.K. regulators in April to end a five-year probe into the manipulation of London-based Libor and Euribor, a Brussels-based benchmark.
But pressure is now mounting on Paul Achleitner, the non-executive chairman of the bank’s supervisory board which hires and fires executives, and John Cryan, the new co-chief executive who will become sole CEO after Mr. Fitschen steps down next May. Employees, major investors and politicians are calling for further staff changes in the wake of the report.
“The aim now should be to use the opportunity for a credible new start,” said fund manager Ingo Speich from Union Investment, a large shareholder. “The restructuring of the management board and in senior management has only just begun and is certain to continue.”
Another major investor, who declined to be named, said: “If the rest of the old guard would take Mr. Jain’s lead and leave, we would welcome it.”
“The restructuring of the management board and in senior management has only just begun and is certain to continue.”
The new pressure comes in the wake of the letter’s publication. Frauke Menke, who oversees large banks at BaFin and authored the letter, was already known to have a score to settle with Mr. Jain, one of the bank’s two co-chief executives who resigned last month. However, since the Wall Street Journal published the entire report on the Internet last week, it has become clear that the accusations go well beyond Mr. Jain himself.
Four current members of the management board and two other senior managers at Germany’s largest bank faced harsh criticism. Poor controls, serious failures in dealing with the scandal and a culture in which only profits counted – these are all the things that Ms. Menke criticized.
As the head of the supervisory board, which helps set a company’s overall strategy, Mr. Achleitner has also had a lot of explaining to do. The letter has raised questions about why he didn’t act sooner to clean up the bank’s reputation.
In Ms. Menke’s report, which the bank received on May 11, she accused Mr. Jain of creating an organization and a corporate culture that made interest rate rigging possible. But nine days after receiving Ms. Menke’s letter, the bank’s supervisory board gave Mr. Jain more powers by making him solely responsible for the bank’s “Strategy 2020” restructuring plan.
Two weeks after the show of confidence from Mr. Achleitner, Mr. Jain suddenly resigned amid a revolt by shareholders.
“That was an embarrassment for Mr. Achleitner and raises the question of whether he underestimated the criticism from BaFin and investors,” said one fund manager, who declined to be named.
Gerhard Schick, a financial expert for the Green Party, went even further and said: “We’ve got to ask whether Mr. Achleitner is in favor of a new corporate culture or would rather just sweep the old problems under the carpet.”
A member of the bank’s works council, which represents its employees, also warned: “If the supervisory board chairman does not take drastic action now, he has a problem too.”
BaFin’s report on the Libor rigging scandal reads like a day of reckoning with current and former managers. Ms. Menke describes a culture of turning a blind eye, saying: “The focus was clearly on profits and not on ensuring that employees complied with the rules.”
Although the regulator has not found any evidence that members of the management board or other top managers knew about the manipulation of interest rates or even ordered it, it says that they were responsible for structural flaws that allowed rates to be manipulated and prevented the issue from being clarified sooner.
Deutsche Bank has strongly denied that senior management played any role in the manipulation, but many Deutsche Bank employees were astonished at the criticism. One works council member said: “There had been doubts for a long time about whether senior management was really innocent in the interest rate affair. Now it’s all becoming clear.”
The regulator accused four managers in particular of “serious” failure. Along with former chief executive Mr. Jain, they include his confidant Alan Cloete, formerly the head of money market trading, Michele Faissola, the current head of asset management and former head of interest rate trading, and Henry Ritchotte, the current chief operating officer.
Ms. Menke has, however, conceded that Mr. Ritchotte “was one of the very few in senior management who showed an interest in shedding light on the interest rate affair at an early stage.”
Stephan Leithner, the former head of the legal department who is now responsible for compliance and other areas, has also been on the receiving end of criticism, although the letter suggests his role was also “less serious.”
During the investigations, an e-mail was discovered in which Mr. Leithner warned Mr. Jain and the bank’s public relations department that, in order to avoid unpleasant questions, they should prevent it from becoming known that the bank was asked in 2008 to improve its interest rate reporting but did not respond.
Others that were criticized included Stefan Krause, the bank’s former chief financial officer and now responsible for payment transactions and the “bad bank”, as well as chief risk officer Stuart Lewis and general counsel Richard Walker.
The bank has rejected some of the points made, but said in a statement: “We have paid a high price and deeply regret our misconduct.”
Will this be enough to appease Ms. Menke? She has already raised the threat of further regulatory action.
Laura De La Motte is currently an editor at the Handelsblatt finance desk and a specialist banking correspondent. Michael Maisch is the deputy chief of Handelsblatt’s finance desk in Frankfurt am Main.Frank Drost is a Handelsblatt Editor in Berlin, covering financial supervision and banks. email@example.com; firstname.lastname@example.org; email@example.com