Deutsche Bank Vows to Stay Off Dole

Posted by: Jack Ewing on February 05

Deutsche Bank Chief Executive Josef Ackermann has stubbornly insisted that Germany’s signature financial institution will not accept government handouts, even as the global financial crisis created an $8 billion pretax net loss in the fourth quarter of 2008. Foolish pride? No, Ackermann insisted to reporters at a press conference Feb. 5. He is convinced that shunning taxpayer bailouts will provide a competitive advantage when markets recover. “If you don’t need money, you shouldn’t take any from the state,” he says.

Ackermann’s reasoning goes like this. Banks who accept public funds face pressure to focus on their domestic markets. They have to accept interference in management, including caps on what they can pay top people. And they suffer damage to their reputations—being on the dole makes them look weak. “Banks who don’t have this burden will be in a substantially better position than those that do,” he says.

Deutsche Bank, Ackermann argues, retains freedom to deploy its resources wherever in the world it sees the greatest profit. It can poach top minds from competitors. (Presumably not the same geniuses who created the global financial catastrophe.) It can continue to pay shareholders a dividend. (Despite the massive fourth-quarter loss, the bank will pay 64 cents per share for 2008.) And the bank will benefit as customers gravitate to institutions that seem least vulnerable—the storied flight to quality. “We can determine our own fate,” Ackermann said.

There may be something to this argument. Deutsche Bank’s revenue in January was $3.6 billion, more than a year earlier and almost as high as in 2007 when the boom was still underway. That result is a hopeful sign, though Ackermann made it clear that the world is still full of risk. If the banking business recovers, Deutsche Bank’s freedom from direct state interference could be a selling point for corporate customers who naturally mistrust bureaucrats. In addition, merger and acquisition clients are likely to prefer institutions with enough heft to put together big financing packages, rather than weak institutions or boutique advisory firms.

As Ackermann acknowledged, Deutsche Bank probably enjoys de facto government guarantees. Deutschland cannot let its namesake bank fail. As long as Ackermann can uphold his pledge to refuse public largesse, he enjoys the best of both worlds.