I remember only too well reading the bullish soundbites of former RBS boss Fred Goodwin in 2008. It is my sad duty to report that the person in banking right now who most resembles the uber-confident crap put out by Goodwin – or ‘badloss’ as wags took to calling him – is Josef Ackermann, the chap in charge of what is now officially Europe’s biggest bank, Deutsche.
Equally, he has the same swaggering anti-politician, anti-regulation attitude that so marks out Lloyd Blankfein from the run of not quite so completely ignorant Wall Street bankers. Ackermann was among the first to chastise IMF bossette Christine Lagarde for having the temerity to suggest last year that some large European banks were in need of “urgent recapitalisation”. Sloggers will know already that I am no Lagarde fan – indeed, she did a volte-face herself on this very issue when she joined the IMF. But I have no hesitation on this occasion in saying she is right, and Ackermann is talking out of another orifice entirely, some distance from his mouth.
Ackermann’s bank – which has been assiduously adding assets as other lenders did the opposite – this week overtook France’s BNP Paribas SA to take back the mantle of being Europe’s largest bank. Its assets rose 14% to 2.16 trillion euros during the last 2011-12 fiscal year. But wise heads in both Europe and the US have their doubts about Herr Ackermann….and in my view, with a great deal of justification.
A year ago, MIT professor and former IMF staffer Simon Johnson called Deutsche CEO Josef Ackermann “one of the most dangerous bankers in the world.” He fingered Ackermann as the crazy author of Deutsche Bank’s longstanding profit target of 25% return on equity, and what he called “excessive risk taking” there. And London-based banking analyst at Mediobanca SpA Christopher Wheeler told Bloomberg this week that “leverage and lack of capital are impacting Deutsche Bank’s valuation”. The message is clear: there is too much risk on Deutsche’s balance sheet, and not enough capital to back it up. The motive behind this is, once again, greed. The higher a bank’s leverage, the higher the returns when times are good. And when times are bad, Ackermann is cute enough to think that he too is Too Big To Fail, and will be rescued by the taxpayer.
Greek debt purchased over the years by the bank offers a classic example. Last year, the Deutsche boss told a bankers’ seminar that many of them could be swallowed by competitors if they had to mark down their entire sovereign debt holdings to real-world market values. He told his audience that it was “stating the obvious that many European banks would not survive having to revalue sovereign debt held on the banking book at market levels”, an assertion that subsequent events might suggest was deranged rather than obvious. Nevertheless, having said this, once Josef Ackermann privately saw the writing on the wall – around July 2011 – he was quick to use his relationship with Merkel to organise a grubby deal restricting Beutsche Bank’s Greek haircut to 21%….the rest being digested by the unfortunate German taxpayer. Not many commentators are aware of the arrangement; but those in Berlin who detest Herr Ackermann are only too aware of it.
Largely as a result of that deal – and wacko Acko’s incessant anti-Government public statements – his previously close relations with Merkel have become distinctly chilly. The German chancellor believes European banks need more capital, and far stricter stress tests. Bizarrely, Ackermann’s stated view is that Deutsche Bank doesn’t need capital, and regards itself as above the stress-test ideas of ‘interfering politicians’. Bob Diamond, David Buik, Freddie Goodwin….they all spout the same MoU bollocks.
American regulators too have every reason to dislike this man whose self-belief is rarely borne out by events. When debt markets rallied in 2009, the bank posted a return on average equity of 14.6%. The following year, as Europe’s sovereign-debt crisis went from worse to awful, margins fell to 5.5%. Ackermann’s ‘business model’ is not that different from Northern Rock’s Adam Applegarth: it is built for good times, on the idiotic assumption that there will no longer be any bad times….or even worse, interesting times.
But bad times are always just around the corner for dumbos. Deutsche Bank was one of the largest recipients of US dollars in the aftermath of 2008. This received near-zero coverage in the financial media, but the fact remains that, just three few months before receiving billions of dollars from the Fed as part of the AIG fiasco, Ackermann had paid his shareholders some 2.6 billion euros in dividends. Since then, it has paid out an additional 1.7 billion in dividends. Be in no doubt: Josef Ackermann is a sort of libertarian/corporate Robin Hood: he believes in taking from the sovereign rich, and giving to the private stinking rich.
When Ackermann retires in two months time, his legacy is likely to be a balance sheet 40% bigger than that of 2006, and 80% of the entire size of the Bundesrepublik economy. In the light of any lessons learned at all from 2008 – and the completely potty idea of one bank with a balance sheet at four fifths of easily EU’s biggest economy – on the whole I think The Slog is justified in suggesting that Deutsche Bank is not so much an accident waiting to happen, as a certainty about to scorch the Earth of anyone speaking a European language.
And that includes, of course, the United States of America.