Anshu Jain quits, when will other global bankers?
The resignation of Deutsche Bank co-CEOs Jeurgen Fitschen and Anshu Jain, it is true, was not so much due to the financial penalties the bank has had to pay for its role in mis-selling US mortgages and in manipulating Libor rates, as it was the widespread criticism of their decision to cut thousands of jobs and their inability to either turn around the bank or its stock. Since the two took over on June 1, 2012, according to Reuters Breakingviews, the EURO STOXX bank index has doubled while the Deutsche stock rose just 6.6%—it is down 6.5% since they unveiled their 2015+ strategy. Dividends fell from $6.98 a share in pre-crisis 2007 to $0.97 in 2012 and $0.84 in 2014. But, at a deeper level, their resignation is linked to the series of financial irregularities and penalties the bank had to pay which completely wiped out profits in Q42013 despite earlier provisioning—indeed, this is the reason why, after saying it had enough capital, the bank had to go back to shareholders for more capital infusion on two occasions.
What is ironic, of course, is that of all the world’s ‘finest’ banks—that is, those that have paid huge fines to regulators for breaking the law—Deutsche barely makes it to the top 10. According to a Reuters analysis, of the $235 billion that has been paid by 20 of the world’s biggest banks since the 2008 financial crisis, Deutsche has paid $5.5 billion—$1.9 billion was paid for incorrect packaging and selling of US mortgages and another $3.5 billion for rigging of Libor rates. Of the $235 billion paid out so far, over $140 billion has been on account of fraudulent selling of US home mortgages that resulted in the 2008 financial crisis that brought the world to its knees. While Bank of America paid the highest fines at $80 billion, it was followed by JPMorgan at $39 billion and Lloyds at $20 billion. While some of the banks involved in the shameless manipulation of currency/interest markets and of deceitful repackaging of bad US loans have seen their chief executives leave, the list is a small one; the fact that the US SEC gave waivers that allowed banks like Deutsche to carry on with their business—with a 3-year probation period in which they have promised not to commit any more crimes—has obviously been a great help; the flip-side is that if most big banks are barred from participating in various markets, there will be serious consequences for global financial stability.
Whether policing at banks will improve or whether the fines will simply be seen as another one-time cost remains to be seen. A good yardstick is JP Morgan and its boss Jamie Dimon who has ensured the bank has remained profitable during the crisis and, in 4 of the last 5 years, produced record earnings—as a result, JP Morgan shares have risen 66% in the decade Dimon has been at its helm in comparison with the 22% fall in the S&P 500 Financials Index over the same period. While Jain and Fitschen paid for their inability to make Deutsche perform, Dimon has taken JP Morgan shares to a life-time high, as a result of which he has just joined the Bloomberg Billionaires list with a net worth of $1.1 billion. Performance, not playing by the rules, is what bank boards’ respect.