Deutsche Bank: costly advice
What tips can Cerberus offer the board on restructuring that it has not already heard?
Deutsche Bank pays its executives handsomely. While long-suffering shareholders wait in vain for a recovery, executives have squirrelled away fortunes. Having paid everyone else, the German bank is now putting an investor on the payroll. One of the bank’s largest shareholders, US-based fund Cerberus, will offer advice on restructuring operations. Paying an investor to become a consultant looks strange even if Deutsche is an institution in need of radical ideas.
Pay and productivity need to be high on Cerberus’s to-do list. The bank pays out a lot, and produces little for shareholders. More than 700 high earners last year were paid a weighted average of €1.9m per year.
Yet over the past 12 months, the bank’s share price has dropped 40 per cent — almost double the pace of German rival Commerzbank. Deutsche’s regional peer group hardly deserves much praise, but the MSCI Europe Banks index is down only 9 per cent over the same period.
Matt Zames, newly installed president of Cerberus, is as well placed as anyone to assist the ailing bank. He arrives fresh from spending five years as chief operating officer at JPMorgan Chase, one of the better run US financial institutions.
The question is, what advice can he provide Deutsche’s board that it has not already heard? Bring in more talent? Check. Cut costs and raise capital? Fine. Be honest with staff and shareholders about slashing more costs? Done.
Cerberus will also need to reassure other shareholders, and regulators, that it cannot act on any insider knowledge. It states that it will not buy or sell shares during the consultancy. But without extending this commitment beyond the engagement, the risk of insider trading remains. Regulatory oversight will be key.
And it may not even be worth the effort. Adding one more name to the payroll will not solve Deutsche’s problems.