Call of the Dividend

Deutsche Bank Hauptversammlung
Deutsche Bank's annual shareholders' meeting on May 19 could see a nasty board fight spill out into the open over the future of its chairman, Paul Achleitner. Here, a scene from the bank's 2015 shareholders' meeting.
  • Why it matters

    Why it matters

    Deutsche Bank is a case study in bad shareholder policy, after it canceled dividends and lowered investors’ expectations for the long term.

  • Facts


    • Commerzbank shares, which were down 90 percent since the collapse of Lehman Brothers in September 2008, rose 8 percent in one day.
    • Deutsche Bank canceled the dividend for both the current business year and 2016.
    • Deutsche, Germany’s largest bank, faces restructuring that will cut jobs, in addition to soaring costs for settling its many legal troubles.
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“Shareholders are both dumb and impudent,” prominent German banker Carl Fürstenberg said at the dawn of the 20th century. “Dumb because they entrust their money to other people without properly checking what they do with it. And impudent because they demand dividends —they even want to be rewarded for their stupidity.”

Investors’ hunger for dividends, so adroitly lampooned more than 100 years ago, has lost none of its relevance.

But that doesn’t mean modern-day shareholders are “dumb and impudent” at all.

For example, a modest 20 euro cent dividend was enough to make troubled Commerzbank the big winner on the stock exchange this week. A day earlier, the bank’s boss Martin Blessing gave the surprise announcement he would resign next year.

He acknowledged net profits were down 9 percent, but put a positive spin on the bad news when he declared the bank’s first dividend since 2007.

It might sound primitive, but dividends are shareholder policy, pure and simple.

The crisis at Commerzbank, Germany’s second-largest bank, is not over by a long way. But the mini-dividend shows that the still partly state-owned lender, which was close to collapse in 2009, is now over the worst.

Investors on Monday shook off the decline in third quarter profits along with the sudden news that the man who engineered the turnaround would step down. As a result, Commerzbank’s share price rose 8 percent in one day.

It might sound obvious, but dividends are shareholder policy, pure and simple. A few weeks ago the German-based healthcare company, Fresenius, halted a downward spiral in share values when Chief Executive Ulf Schneider, suddenly and without any apparent reason, announced a “significant increase in the dividend.” The move was enough to give its stock sustainable impetus, which is still in evidence.

The dividend “laggard” is now Deutsche Bank, which instead demonstrated the quickest way to destroy value and how not to deal with investors.

John Cryan, co-chief executive and the man in charge of restructuring Germany’s largest bank, didn’t pull any punches when he described an ailing financial institution and spoke openly about the shortcomings of his predecessors.

Investors often reward such openness with a hike in the share price — but only when the new boss combines the horrific status quo with positive future prospects.

The stock exchange doesn’t punish past mistakes, it speculates on the future. And that is exactly what Mr. Cryan took away from shareholders — future prospects — by canceling the dividend for both the current year and 2016.

Even worse, he lowered expectations until and including 2017, because cutting jobs, the costs of legal disputes and regulatory expenses all have priority.

So what does that leave investors? Nothing. They see neither prospects, nor a business model that might drive up the share price. That’s why Deutsche Bank shares nose-dived on (and since) the day of the bad news.

Investors have been left horrified. Even analysts with a tendency to be optimistic cannot make a case for buying the stock. To repeat: Shareholders are not dumb.

Not even companies with tougher restructuring projects — like steel giant Thyssen-Krupp or Commerzbank, for example — dared impose such a long dividend-free spell as Deutsche Bank just has. Because in Germany — as in the United States — dividends are one of the most important instruments for supporting share prices.

This is all the more so when dividend returns of 3 and 4 percent, as offered by many companies, are strong arguments to balance meager savings and bond interest rates.

BASF, Munich Re, Linde, BMW, Fresenius and many other companies show that the long-term share price fares better when dividends regularly increase and ideally, never fall.

On the negative side are companies without a dividend culture, like Lufthansa for instance. The airline pays a big dividend in good times and in bad times, nothing at all.

That’s why Lufthansa’s euphoric announcement of dividends a few days ago didn’t help. The share price fell anyway, because investors, who prefer sustainable dividend strategies, had lost their long-term confidence. The consequence of such an unreliable shareholder policy is below-average share price development.

Deutsche Bank boss John Cryan would be better advised to follow the example of Commerzbank’s departing chief and give investors — quite apart from his 98,000 employees — more promising prospects and confidence in the future.

At this point, only positive dividend news would serve to stimulate the share price, employees’ motivation and, above all, the bank’s business.


118 Deutsche Bank-01 WTB 2014


Ulf Sommer covers Germany’s companies and financial markets for Handelsblatt. To contact the author:

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