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Can This Man Crank Up Deutsche?


Josef Ackermann excels at just about everything he does. He's a skilled skier and an accomplished pianist. In his youth he was a champion javelin thrower. And he has proved himself a very able investment banker. Now, the 54-year-old Swiss has taken up a challenge that will test his mettle as never before: reviving Deutsche Bank (DB). On May 23, Ackermann will take over as chief executive of Germany's biggest bank. Can he put new life into the lumbering Frankfurt behemoth? Skeptics abound. "Deutsche announces a new structure every six months but has little to show for its efforts," says analyst Mark Hoge, who follows its stock for Bank of America Securities in London. "I wonder whether Ackermann will really make much difference."

Turning around Deutsche's flagging fortunes won't be easy. The bank, Europe's largest in terms of assets, is saddled with a struggling asset-management operation, a $13.5 billion portfolio of poorly performing corporate investments, and a money-losing network of retail banks. Big acquisitions in recent years--such as the 1999 takeover of Bankers Trust Corp. and this year's purchase of money manager Zurich Scudder Investments--have left it with indigestion. And it's plagued by sky-high costs: 89% of its revenue went to expenses last year, vs. an average of 60% for European banks. Internal squabbles will make the task tougher: A series of rows between Deutsche's traditionalists, who want it to stick to the German way of doing business, and modernizers, who want to remake it as a U.S.-style institution, have unsettled the bank. That split will widen if Ackermann pursues his radical idea of moving Deutsche's headquarters to London.

Ackermann has remedies for all these ills, but his top priority as he takes office is to get the stock price up. He told senior colleagues at a meeting in Dublin on May 3 that he wanted Deutsche back among the top five banks in the world as measured by market capitalization. That would mean more than doubling the bank's current $42 billion value, which doesn't put it in even the top 20. "Shareholder value is the top priority," he says. The stock is off about 25% since its peak early last year, but it has gained ground since last fall, when Ackermann, who was tapped for the top post two years ago, began plotting a new course.

Bulking up the company's value won't keep just shareholders happy, it will also dangle a carrot in front of top-level staff, who are paid partly in stock. Senior executives lambasted outgoing CEO Rolf E. Breuer at a raucous meeting outside Frankfurt in November for his failure to protect the stock's value. A higher share price would also shield the bank from predators. Colleagues say Ackermann was unnerved in February when Citigroup proposed that the two banks consider merging, a suggestion he rebuffed.

Ackermann would love, however, to emulate Citigroup. He wants Deutsche to have the same broad array of businesses, and he wants the same power Citigroup Chairman Sanford I. Weill wields. On the second point, Ackermann will have his way. On Jan. 31, Deutsche unveiled a radical management restructuring that created a new executive committee, chaired by Ackermann, to run day-to-day operations. That's a major departure. Under German law, companies are run by management boards called Vorst?nde, in which all decisions are made by consensus. Stretching the law to its limits, Ackermann demanded all the powers of an American or British CEO through the new executive committee. Traditionalists were aghast, but Ackermann quickly quelled the dissent, ousting his most vocal critic, Vorst?nde member Thomas Fischer, the day before the plan was announced.

Ackermann believes that the success of Deutsche's investment bank, which he headed since joining the bank in 1996, was largely due to the control he exercised. Once a second-tier regional player, the investment bank is now a global powerhouse capable of challenging the giants of Wall Street in some markets. It's also Deutsche's most profitable division.

Ackermann has another big idea: to move Deutsche's headquarters to London. The first foreigner to head a major German bank, he has told friends that he enjoys Frankfurt's fine museums and riverside walks, but London is where the banking action is. He spends much of every week there at Deutsche's modernistic Winchester House offices, and will likely move more of his senior staff there. But switching to London would create a firestorm in Germany and sharply divide the staff. On May 8, Breuer ruled out the idea in a radio interview, and Ackermann probably won't pursue it.

Once he is firmly in control, Ackermann's next mission will be to deploy the bank's capital more effectively. His plan, put together in a meeting with senior staff in mid-April, is to sell most of the bank's money-losing or low-return businesses and invest the proceeds in its strongest areas--investment banking, asset management, and investment advice for wealthy customers. He also wants to buy back up to 10% of outstanding shares. Some long-standing Deutsche businesses will come under the hammer. The bank's passive fund-management business--the index-tracking money-management unit, which has $153 billion on its books--will almost certainly go, as will its $3.37 trillion global securities-custody business, which despite its huge size still ranks only fifth in a fast-consolidating sector. Ackermann might also dump Banque Worms, the French bank acquired last year. He expects to speed up the sale of Deutsche's investments in nonfinancial companies, which include stakes in carmaker DaimlerChrysler, tire manufacturer Continental, and cement producer Heidelberger Zement.

One unprofitable unit that won't be dropped is the retail subsidiary, Bank 24. Breuer twice tried to dump it. But Ackermann plans to keep it, largely because it can be used to distribute equity and bond issues arranged by the investment bank. On Apr. 29, he announced that Bank 24 will be merged with other banking units and rebranded as, of all things, Deutsche Bank.

Doing all this would tax even the most skillful of managers, and Hoge of Bank of America is one of many skeptics. Ackermann, however, might have the right combination of qualities to pull off a real overhaul of 132-year-old Deutsche. He's a hands-on manager, makes decisions quickly, and gets tough--some say nasty--when staff don't perform. But Ackermann, the son of a country doctor, can also use his winning smile and affable manner to convert his colleagues to his program. Some 120 senior Deutsche managers gathered in a Dublin hotel on May 2 and May 3 to hear Ackermann outline his plans for "operation share price." Attendees say they're convinced that he has the vision, focus, and managerial acumen to revitalize the bank. And they say he should be much more successful than his predecessor, Breuer, who was held back by the old consensus system and was never able to bridge the gap between the modernizers and the traditionalists. "The only thing Ackermann and Breuer have in common is their love of the opera," says one insider. "The new man will now do to the group as a whole what he did to the investment bank. This is the beginning of a new era." Long-suffering investors certainly hope so. By David Fairlamb in Frankfurt


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