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When the two executives who lead Deutsche Bank, Germany's largest bank, unexpectedly announced their resignations on Sunday, pressure from angry shareholders was widely seen as the chief factor.
But German regulators also played a role in the departures at the bank, according to two people briefed on the events that contributed to the leadership upheaval.
The German regulator, known as BaFin, pressed for Anshu Jain and Jürgen Fitschen to step down as co-chief executives of Deutsche Bank because of unhappiness over the way they had handled an investigation into alleged manipulation of benchmark interest rates by bank employees, the people said.
Jain and Fitschen were not accused of taking part in the manipulation, which occurred while Jain was head of the Deutsche Bank investment bank. But the US and British authorities complained in public statements that Deutsche Bank had been slow to provide information and had kept incomplete records.
A spokesman for Deutsche Bank strongly denied that a push from regulators was behind the resignations of Jain and Fitschen.
"It is categorically false that pressure from regulators was a factor in the decision of the co-CEOs to step down early," Michael Golden, the spokesman, said in an email. He pointed out that Jain would not receive about euro 15 million in pay he would have been entitled to if he had been fired.
Jain will leave at the end of June while Fitschen will remain another year. John Cryan, former chief financial officer of UBS, was named the new co-chief executive and will become sole chief executive after Fitschen leaves.
A major force on Wall Street, Deutsche Bank has recently run into trouble with US financial regulators. A US unit of Deutsche Bank failed a regulatory "stress test" earlier this year, and before that, the Federal Reserve Bank of New York criticised the bank's financial controls in a stern regulatory communication.
But it was BaFin, which has at times been criticised regarding its oversight of Deutsche Bank, that acted this time.
The recent investigation into Deutsche Bank's manipulation of interest rate benchmarks helped deplete BaFin's confidence in the bank's leadership, the two people briefed on its actions said. In particular, BaFin is said to have been frustrated by Deutsche Bank's poor record-keeping, which made it harder for the authorities to look for potential misconduct.
In April, Deutsche Bank agreed to pay $2.5 billion in penalties to the US and British authorities to settle accusations that its employees colluded with other banks to manipulate the benchmarks used to set trillions of dollars in loans.
The German bank, however, paid more than other banks such as Barclays and UBS, which were also accused, angering Deutsche Bank shareholders who said Jain and Fitschen had mishandled negotiations with the authorities. The shareholders said they were also unnerved by the regulators' descriptions of Deutsche's conduct.
"It was not just about the fines, but also what regulators said," said Hans-Christoph Hirt, a director at Hermes EOS, which represents large investors. "It was particularly concerning."
In its deferred-prosecution agreement with Deutsche Bank, for instance, the US Justice Department said the bank committed "numerous unintentional but significant mistakes in the preservation, collection, and production of documents, audio and data", including the destruction of thousands of hours of audio recordings.
And a regulatory action on the London interbank offered rate, or Libor, from the Financial Conduct Authority of Britain detailed an incident that might have unsettled BaFin. The German regulator had commissioned a review of Deutsche Bank's potential interest rate misconduct. Deutsche Bank employees asserted they could not share the review with the Financial Conduct Authority. But the British regulator's report said, "The BaFin gave no indication that it in any way disapproved of or restricted disclosure of the report to the authority by Deutsche Bank."
BaFin also showed an interest in allegations that Deutsche Bank at the height of the financial crisis overstated the value of a large multibillion-dollar portfolio of complex derivatives. The allegations led to the bank's agreeing to pay a $55-million settlement to the US Securities and Exchange Commission (SEC) last month. Investigators from BaFin interviewed several former employees of the bank, including at least one whistle-blower who provided information to the SEC, people briefed on the matter said.
Deutsche Bank's financial performance is lagging that of many of its peers. In the US, the bank competes with Goldman Sachs and JPMorgan Chase, among others.
Like others on Wall Street, Deutsche Bank borrowed billions of dollars in emergency funds from the US Federal Reserve during the financial crisis.
Despite that assistance, Deutsche Bank took steps after the crisis to remove its Wall Street business from the authority of US regulators. But the Fed has introduced an overhaul that will bring the US operations of Deutsche and other large foreign banks under its scrutiny.
The big question hanging over Deutsche Bank now is whether its new leadership can bolster profitability while adapting to post-crisis rules. The bank, its critics say, might struggle to earn strong profits as it has to rely less on borrowed money to finance its operations.
"Whether they can succeed in this regulatory environment is the real question," said Sheila C Bair, who, as the former chairwoman of the Federal Deposit Insurance Corporation, raised concerns about Deutsche after the crisis.
On Monday, shares of Deutsche Bank jumped as much as 8.2 per cent in trading in Frankfurt - the most in two years - as investors welcomed the new management. Shares ended the day up nearly five per cent on the New York Stock Exchange. Still, some analysts questioned whether Cryan would usher in major change.
Only weeks earlier, Deutsche Bank's supervisory board had given Jain more authority to push through a five-year reorganisation plan intended to cut costs, make the bank easier to manage and reduce risk. Cryan has been a member of that board and signed off on the five-year plan, which was the subject of intense internal discussions. Cryan might decide it will cause more instability to change course. Among other things, the plan calls for Deutsche Bank to defend its status as the most formidable rival to the US investment banks at a time when other European banks such as UBS and Barclays have sharply cut back their investment banking operations.
"The longer-term issue about the core profitability of the business needs more than a new CEO to resolve," James Chappell, an analyst with Berenberg Bank, said in a note to clients on Monday.
Deutsche Bank has portrayed the decision by Jain and Fitschen to leave as a form of self-sacrifice on their part rather than the result of pressure.
"Jürgen and Anshu approached me with their decision because they felt that with Strategy 2020 in place, now is the right time for a new leader to see through its delivery over the next five years," Paul Achleitner, the chairman of the Deutsche Bank supervisory board, said in a memo to bank employees. Strategy 2020 is the name of the bank's five-year plan.
As a non-German speaker, Jain, a native of India who earned an MBA at the University of Massachusetts, had trouble winning over some in German financial and political circles. Neighbours on the leafy, affluent street in Frankfurt where Jain has an apartment said they rarely saw him. Outside his building is a discreet gold nameplate with just the letter "J".
©2015 The New York Times News Service
