Jain of command
Deutsche’s cosmetic rejig puts pressure on Jain
Deutsche Bank’s management reshuffle ratchets up the pressure on co- Chief Executive Anshu Jain. The changes announced on May 20 are largely cosmetic, and will do little to stop investors registering displeasure at Deutsche’s top brass after the bank’s annual meeting late on Thursday. But Jain’s new sole responsibility for strategy makes him directly accountable for much-needed cost cuts.
After three years of chronic underperformance, both co-chief executives are fortunate to have retained their jobs. Since they took over on June 1, 2012, Jain and his co- Chief Juergen Fitschen have presided over a 6.6 per cent rise in Deutsche’s share price. In that time, the Eurostoxx bank benchmark index has doubled. Deutsche’s stock is actually down 6.5 per cent since the duo unveiled their failed “2015+” strategy in September 2012, and 2014 return on equity was 2.7 per cent.
The extent of that underperformance is most clearly seen in Deutsche’s inability to reduce costs. Expenses were supposed to be news on May 18 behind closed doors to a select audience which included investors from hedge funds. Critics loudly complained that Coeure gave them an inside edge on the big market moves that followed publication of the comments the next day. The ECB blamed an “internal procedural error” for the delay between the delivery and publication of the speech.
Now, there is a risk of undersharing. The embattled central bank has said it will stop giving journalists advance copies of policymakers’ speeches. That is an odd response around 65 per cent of revenue by the end of this year. Instead, analysts hacked back most. peg them at 84 per cent for Deutsche kremlinologists may wonder 2015. Last year they were 87 per cent, whether the most recent changes are a prelude not much better than the 93 per to a wider revamp by Chairman Paul cent recorded in 2012. Achleitner. Former Finance Director Stefan
Small wonder that shareholder Krause now has responsibility for transactional advisers ISS and Hermes EOS have banking, Deutsche’s best-performing recommended that investors business and its most promising prospect for express no-confidence in the bank’s growing returns. Success there could potentially management at the AGM. While German put him in line for elevation. shareholder votes are non-binding, Hermes There are small signs here that Deutsche is has even called for fresh faces at the top of the getting to grips with the need for accountability, bank. Only Rainer Neske is leaving Deutsche’s and Jain could seize his opportunity to eight-strong management board – though deliver change. But investors could be forgiven that’s hardly a surprise given the retail banking for division consideringhe ranit toois little,the businesstoo late. being since the early distribution does not seem to have caused any problems in the past. If anything, central banks avoid confusion by giving journalists time to think through the officials’ sometimes cryptic pronouncements.
An even bigger problem is that the ban doesn’t address the basic issue of how to stay in touch with markets without giving away privileged information. It’s not easy to share thoughts with people who consider your every word to be a money-making opportunity.
The ECB may want to avoid any taint of offering unfair privilege for a chosen few. But Coeure, like central bankers everywhere, needs to have many informal contacts with bankers and businessmen. Free exchanges with powerful insiders both allow central bankers to explain their intentions and give them insight into how policies might play out in the markets.
Granted, central bank officials could let sensitive information slip, as someone at the U.S. Federal Reserve might have done in 2012. But nothing short of forbidding all contact with outsiders can ever eliminate the risk. And decisions made in ivory towers are rarely the best.