Deutsche Bank's CEO Weakened by Losses

While it still won't accept help from the government, the record loss by Germany's Deutsche Bank leaves CEO Josef Ackermann on shaky ground

By Dirk Kurbjuweit, Armin Mahler and Christoph Pauly

Barack Obama has assembled many disciples with his rallying cry of "Yes, we can," but Josef Ackermann has to be the most unusual one. After announcing in Frankfurt one morning that the institution he manages, Deutsche Bank, lost about €4 billion ($5.3 billion) in 2008, he gave a speech in Berlin that very same evening and told his audience: "Yes, we can."

Okay, but what was he talking about? Surviving the financial crisis? Doing everything in his power to prevent his bank from having to retreat underneath the government's bailout umbrella? What exactly can the people at Deutsche Bank do?

What they certainly can do is burn money—€4.8 billion ($6.3 billion) in the fourth quarter of last year alone. It was the biggest loss in Deutsche Bank's 140-year history.

But that didn't stop Ackermann from giving a highly optimistic speech on Wednesday evening, over champagne and hors d'oeuvres at Deutsche Bank's New Year reception in Berlin.

He received enthusiastic applause when he stressed, once again, that his bank does not need money from the government. "We are a long way from that," Ackermann said. As if the recent miserable financial results hadn't happened, he praised the strength of his bank and handed out advice to people around the world, especially politicians. Don't jettison too much freedom now, was his message.

But his warnings have fallen on deaf ears in the political circles of Berlin. Ackermann, who spoke of "toxic assets" in his speech, is apparently being treated as such in the German capital these days. One doesn't like being seen with him.

Ackermann is fighting—against the crisis, against politicians and against public opinion—and ever since last Wednesday, he's wounded.

Losses Reveal Culture of Risk-Taking

So far, Deutsche Bank seemed to have weathered the crisis relatively well, or at least far better than most of its competitors. But the fourth-quarter figures paint a different picture, no longer portraying Deutsche Bank as a sound institution, but as one that took far too many risks. As a bank that speculated not just for its clients but for itself and at its own risk, that acted like a hedge fund—and ended up losing.

It is true that many of its competitors are in far worse shape. Citigroup lost about $18.7 billion (€14.2 billion) in 2008, and now it is likely to be split up. Investment bank Merrill Lynch expects to see a loss of $15.3 billion (€11.6 billion) for the fourth quarter alone, causing serious problems for Bank of America, which now owns the brokerage house.

But Deutsche Bank was the exception to the rule until now. That role has since passed to JP Morgan, which managed to complete the last quarter without a loss. Ackermann, for his part, had to admit that the crisis has uncovered "a number of weaknesses" at his bank.

These are the weaknesses of his own strategy. He put too much faith in his investment bankers in recent years, the people who had generated billions in profits, year after year, in the good times. But now they are responsible for gigantic losses that far exceed the bank's overall losses.

The team of bankers working for the charismatic Anshu Jain, co-head of Deutsche's investment banking unit, wiped out a total of roughly €8.5 billion ($11.2 billion) before taxes.

The bank's overall loss was smaller than that because of tax credits for the substantial losses and because of profits earned by other parts of the bank.

Hit by Perfect Financial Storm

When the perfect financial storm was raging at the end of last year, it became clear that Ackermann's bank was traveling with far too many sails hoisted. "We were hit by the third wave during that storm," says Ackermann with uncharacteristic modesty.

Last year, 11,000 investment bankers invested €19 billion ($25 billion), or about 60 percent of the bank's entire venture capital. But even in the midst of the crisis, Ackermann continued to give free rein to the Indian-born Jain and his staff.

Ackermann trusted Hugo Bänziger, a fellow Swiss. Bänziger, in charge of risk management, was initially blessed with the necessary good fortune.