Meet Deutsche Bank’s least-pop­u­lar board mem­ber

A lawyer asks a lot of ques­tions and clashes with the chair­man “The com­pany needs to re­turn to calmer wa­ters”

Bloomberg Businessweek (Asia) - - CONTENTS - Ni­cholas Com­fort and Am­bereen Choudhury The bot­tom line Deutsche Bank brought an at­tor­ney onto its su­per­vi­sory board to help man­age le­gal risk. He hasn’t been pop­u­lar.

Ge­org Thoma, a lawyer, and Paul Ach­leit­ner, a banker, worked to­gether for more than two decades mod­ern­iz­ing cor­po­rate Ger­many. In 2013, when Ach­leit­ner needed a spe­cial­ist to solve the multi­bil­lion-dol­lar le­gal headaches at Deutsche Bank, where he was chair­man, he pro­posed his friend join the su­per­vi­sory board.

But now Thoma has turned on him. The con­flict has burst into the open, deep­en­ing the trou­bles at Ger­many’s dom­i­nant fi­nan­cial in­sti­tu­tion. Thoma’s in­ten­sive ef­forts to

in­ves­ti­gate Ach­leit­ner and Deutsche Bank ex­ec­u­tives have left him iso­lated, ac­cord­ing to at least two board mem­bers who’ve spo­ken out against him in public. The bank’s 20-per­son su­per­vi­sory board, sched­uled to meet on April 27 and 28, was ex­pected to dis­cuss Thoma, ac­cord­ing to a per­son fa­mil­iar with the mat­ter. The lawyer may be pres­sured to step down from the board.

Thoma’s probes have been fray­ing his re­la­tion­ships on the board at least since 2014. Last year he sought coChief Ex­ec­u­tive Of­fi­cer John Cryan’s ap­proval for an in­ves­ti­ga­tion into Chair­man Ach­leit­ner’s role in the bank’s re­sponse to a U.K. in­ves­ti­ga­tion of the com­pany’s Lon­don in­ter­bank of­fered rate-set­ting prac­tices, ac­cord­ing to peo­ple fa­mil­iar with the mat­ter. The bank agreed in 2015 to pay a record $2.5 bil­lion in fines to U.S. and U.K. au­thor­i­ties to set­tle charges that sev­eral em­ploy­ees helped rig Li­bor, used as a bench­mark for loans around the world. A Deutsche Bank spokesman de­clined to com­ment on be­half of the in­sti­tu­tion and Ach­leit­ner. Thoma didn’t re­spond to re­quests for com­ment.

“The cur­rent in­fight­ing is sim­ply a re­flec­tion of the frus­tra­tion cur­rent board mem­bers are feel­ing as they at­tempt to clean up the mess caused by ear­lier bank trans­gres­sions,” says Mark Wil­liams, a lec­turer at Bos­ton Univer­sity and author of Un­con­trolled Risk, a book on the rise and fall of Lehman Broth­ers. “The ex­tent of open

in­fight­ing is not healthy and points to a bank that still has not fixed its cor­po­rate gover­nance is­sues.”

Cryan was ap­pointed co-CEO last year to turn around a bank be­set with reg­u­la­tory and busi­ness is­sues. Its shares are down more than 4o per­cent in the past 12 months. In ad­di­tion to le­gal costs, a trad­ing slump has eroded rev­enue, com­pound­ing con­cerns that it can’t earn enough to fund the over­haul. The bank paid or set aside more than €12 bil­lion ($13.6 bil­lion) to cover fines and law­suits from 2012 through 2015, help­ing wipe out prof­its in the pe­riod.

Thoma’s con­flict with the board be­came more public on April 24. Deputy Chair­man Al­fred Her­ling crit­i­cized him in the news­pa­per Frank­furter All­ge­meine Son­ntagszeitu­ng, say­ing he was go­ing too far and spend­ing too much in prob­ing po­ten­tial wrong­do­ing. The pa­per cited an­other board mem­ber say­ing that while the bank needed to be dili­gent work­ing through le­gal is­sues, it had to be able to move on. The costs for Thoma’s in­ves­ti­ga­tions are “no longer pro­por­tion­ate,” Her­ling told the pa­per. Reached the fol­low­ing day, he con­firmed the com­ments at­trib­uted to him but said he had noth­ing to add.

Michael Hünseler, a money man­ager at Asse­nagon As­set Man­age­ment, which holds some of the bank’s bonds, says the le­gal is­sues re­main a con­cern for in­vestors. “We’d pre­fer Deutsche’s man­age­ment to fo­cus on get­ting the bank back in shape and not be­ing dis­tracted

“The bank has to fo­cus on the fu­ture and its suc­cess, so it is a le­git­i­mate ques­tion whether you can delve too deeply.” ——An­a­lyst Michael Seufert

by in­ter­nal dis­putes,” he says.

Ach­leit­ner tapped Thoma as part of an over­haul to bring in more le­gal and fi­nance spe­cial­ists. The lawyer, who’s with the firm Shear­man & Ster­ling, has been lead­ing a board com­mit­tee that mon­i­tors and an­a­lyzes le­gal risks. Ach­leit­ner told col­leagues at the time Thoma joined the board that his experience would be a boon, be­cause post-fi­nan­cial-cri­sis scan­dals were just be­gin­ning to hit Euro­pean banks, ac­cord­ing to a per­son fa­mil­iar with the mat­ter.

There was a per­sonal con­nec­tion, too. The friend­ship be­tween Ach­leit­ner and Thoma went back decades. The two men worked on the pri­va­ti­za­tion of the eastern Ger­man chem­i­cals in­dus­try af­ter the fall of com­mu­nism. When Ach­leit­ner was at Al­lianz, Thoma ad­vised the in­surer on its pur­chase of Dres­d­ner Bank and on the sub­se­quent sale of the lender to Com­merzbank in 2008.

“Ge­org Thoma is with­out a doubt one of the dis­tin­guished lawyers in Ger­many,” Ach­leit­ner’s wife, An­nKristin, said in a speech in 2005.

With Deutsche Bank em­broiled with reg­u­la­tors and pros­e­cu­tors in the U.S. and the U.K., Thoma has ex­pressed in­creas­ing con­cern about his own per­sonal li­a­bil­ity and that of his board col­leagues, says one per­son fa­mil­iar with the sit­u­a­tion.

Ach­leit­ner and Thoma have clashed in front of other su­per­vi­sory board mem­bers, say peo­ple who’ve seen them squab­ble. The con­flicts erupted over big strate­gic is­sues as well as smaller ones, one says. Thoma’s in­ter­nal probes may have in­curred €14 mil­lion in le­gal costs for 2014 alone, says one of the peo­ple fa­mil­iar with them.

An­a­lyst Di­eter He in, at Fai research Al­pha value near Frank­furt, says Thoma is “do­ing his job.” Hein’s firm has a sell rec­om­men­da­tion on Deutsche Bank’s shares. “The com­pany needs to re­turn to calmer wa­ters, and to do that, the su­per­vi­sory board needs to de­ter­mine what went wrong,” he says.

Michael Seufert, an an­a­lyst at Nord­deutsche Lan­des­bank in Hanover, says the is­sue isn’t that clear-cut. “The bank has to fo­cus on the fu­ture and its suc­cess, so it is a le­git­i­mate ques­tion whether you can delve too deeply,” says Seufert, who has a hold rat­ing on the shares. “Deutsche Bank and the wider in­dus­try have changed so much over the last few years that our un­der­stand­ing of what is in­ap­pro­pri­ate to­day doesn’t nec­es­sar­ily re­flect the prac­tices of the past.”

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.