 Under proposals put forward by activist shareholders, Deutsche Bank faces calls to spin off its investment banking activities within two years and pull back from the US. The two proposals will be put to shareholders at Deutsche’s forthcoming annual meeting.
The shareholders claim that over the last 10 years investors would have made better returns by investing in risk free German Treasury bonds. The two shareholders liken the investment banking industry to football where "everything is distributed to the players and nothing is left for the club". They claim that shareholder value has "been destroyed on a substantial scale in the past 10 years" at Deutsche, even as rich bonuses have been paid to its investment bankers. Proposal 1It is proposed that the following resolution be adopted: The Management Board is instructed by the General Meeting to take all actions and make all preparations needed to ensure that the spin-off of investment banking business can be submitted for resolution as far as possible at the next General Meeting, but no later than at the next General Meeting but one.
Reasons: Investment banks do not differ substantially from football clubs. Ultimately, everything is distributed to the players and nothing is left for the club. Multi-billion bonuses for the (supposed) top people in good years correspond to years in which bubbles burst and shareholders are left sitting on losses. Judging by the statistical average, investment banking is not a business model that can be conducted successfully in the long term by listed joint stock corporations. Not even Deutsche Bank, which at the moment sees itself as above the statistical average, can offer its shareholders a performance over the last ten years that can come anywhere near matching that of German Treasury bonds. At the time of the General Meeting in 1998, the share was quoting at € 81. At the time of the convention of the General Meeting 2008, the share price was much lower, and the dividends paid since 1998 add up to just 22 per cent of the price in 1998. The annual return for shareholders would therefore, even assuming a price of € 81 is reached by the date of the General Meeting in 2008, amount to only about 2 per cent. Compared with a risk-free alternative investment, value has therefore been destroyed on a substantial scale in the past ten years. “As chance would have it,” the last ten years have been characterized by an explosion in compensation in the investment banking field. Banks that stayed clear of this business and kept their risks under control generated substantial added value for their shareholders over this period. In a long-term statistical average, it would appear that every investment banker who goes is a gain for the bank he leaves. It’s time to act. The investment banking gurus should be urged to buy the investment banking business and conduct it for their own account. At listed joint stock corporations, there should be an end to multi-million salaries, which in the long run leave no scope for an appropriate return on shareholders’ equity. Proposal 2It is proposed to the General Meeting that the following resolution be adopted: The following sub-para. 3 is added to § 2 of the Articles of Association: " The company grants no loans to borrowers whose domicile or group management is situated in the United States of America, unless against collateral which can easily be liquidated in the Eurozone. Excepted from this are loans to companies whose group management is domiciled in the Eurozone, in so far as recourse is also possible to the parent company. The purchase of bonds or other securitized debt instruments or derivatives based on such instruments is equivalent to lending. Loans which are already extended or firmly committed on May 29, 2008, and which may not be granted pursuant to sentence 1, must be terminated at the next possible date subject to compliance with contractual obligations; in so far as termination is legally possible before May 29, 2010, the termination may be postponed until this date in the interest of the orderly settlement of the credit relationship.” Reasons: The U. S. A. is the country of crisis, unsound economic activity and pathological overcompensation of fair weather captains. The American banking system has never been reliable. Just 20 years after the “savings and loan crisis”, in which a three-digit billion amount went up in smoke, the U. S. financial scene is again confronted with a catastrophe. Be that as it may, German companies in particular allow themselves to be tempted by U. S.-style Potemkin villages to engage in risky business. In this respect, the company itself is a prime example of this when it advised and voted into existence the multi-billion débacle of DaimlerChrysler AG, in which it once had a substantial shareholding – with the result of a massively devalued holding. The company should launch a de-Americanization process without delay before it becomes even more deeply embroiled in the U. S. mess. This is true, despite the fact that it appears to be less affected by the U. S. financial crisis at the moment than several of its competitors. The situation may be totally different in the next crisis. This is especially true as the company’s management already has difficulty keeping its risks under control. At the General Meeting 2007, the Management Board Chairman was still saying, according to a transcript: “We have first-class and efficient risk management systems which we are continuously refining. The crisis in the North American market for subordinated real estate loans has therefore not affected us.” In the meantime, the risk management systems seem to have been refined to such an extent that it has been possible to detect potential write-downs amounting to several billions. The result is a share price which is lower than it was ten years ago and a share performance which is far behind German Treasury bonds. Compared with that, many small banks, which were forbidden from gambling on U. S. markets by a regulation in their articles of association, have demonstrably created substantial added value for their shareholders in the last ten years. But as non-Americanized banks, they didn’t have to pay their managers millions in salaries.
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