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Deutsche Bank chairman leads battle for the bulge bracket

Deutsche Bank AG Chairman of the Supervisory Board Paul Achleitner attends the Asian Financial Forum (AFF) in Hong Kong January 13, 2014. RE
Deutsche Bank AG Chairman of the Supervisory Board Paul Achleitner attends the Asian Financial Forum (AFF) in Hong Kong January 13, 2014. RE

By Thomas Atkins

FRANKFURT (Reuters) - Paul Achleitner, the chairman of Deutsche Bank , believes Europe needs a global investment bank to support the region's companies that can measure up to rivals in the United States.

For that reason, Deutsche on Monday asked shareholders for 8 billion euros ($10.98 billion) to help the bank keep its place in the shrinking "bulge bracket" of big investment banks that includes JP Morgan , Goldman Sachs , Citi and Morgan Stanley .

While other European banks such as UBS are scaling back in investment banking, Deutsche remains the only European investment bank to have avoided wholesale job cuts and the only one aiming to represent European companies in the capital markets worldwide.

"Our continent is at a turning point where it needs to decide whether it wants to belong to the champion's league of financial markets participants," Achleitner said earlier this year.

Achleitner wants big, and so does corporate Germany, which regards Deutsche Bank as a national institution that can support the world's biggest exporter after China.

When Achleitner was at Goldman Sachs, he advised Deutsche on its 1999 purchase of Bankers Trust, a deal that catapulted it into the big league. But in 2000, as CFO at Allianz , he tried to stitch the insurer into a merged Dresdner and Deutsche Bank, a mega-deal that fell apart soon after it was announced.

"Germany and the euro zone need a big investment bank and you have only one left and that is Deutsche Bank," Joachim Faber, chairman of the supervisory board of Deutsche Boerse, said. "The business community is very aware the Deutsche Bank is very important to Germany."

So when 57-year-old Achleitner stands before the bank's annual shareholder meeting on May 22, he must make the case for the capital hike and the bank's turnaround plan, which also aims to overhaul the bank's culture after a string of scandals.

Achleitner, who joined Deutsche as head of the supervisory board in 2012, is pressuring management to settle what the bank calls "legacy issues" before the end of the year.

But the list of remaining cases - which includes everything from interest rate-rigging to mortgage mis-selling - is long and the bank's hope of clearing the decks quickly is fading.

That has cast a pall over co-chief executives Anshu Jain and Juergen Fitschen and fuelled speculation in the German media that one or both will not serve out their contracts to 2017.

Achleitner, who has to have alternate CEO candidates at-the-ready, rejects the notion that he himself would grab the wheel.

"I am quite hands-on as far as supervisory board matters are concerned (but) I do not, nor do I wish to, serve in an executive function. This is ridiculous," he told Reuters last week.

CULTURE CHANGE

Shortly after Fitschen, Jain and Achleitner took up their jobs in mid-2012, Deutsche Bank began its big overhaul which has included technology, structure, compensation and compliance. But Achleitner's hardest battle is to change the bank's culture.

"The public doesn't understand anything about cultural change," Juergen Hambrecht, former CEO of chemical company BASF and architect of the bank's reformed compensation system, said.

"People think it's like switching on a light. But that doesn't work. It is a fundamental change in the way the bank and all employees see themselves."

Hambrecht, a sometimes provocative advocate of corporate Germany and its needs, said the problem with "pre-reform" Deutsche Bank was that it was more concerned about making money than serving customers.

"The client was nowhere. The client wasn't important," Hambrecht said. "It was the individual banker himself who mattered and the main question was, how could the bank advance its interests, regardless of the client."

Cultural transformation at Deutsche, Hambrecht said, will take another five to ten years to complete. "Deutsche Bank is in fact on the right path but the past is a burden that cannot be gotten rid of so quickly."

Two years into the revamp, the bank on Monday diluted and delayed its original goals by one year, which means, in effect, it will take until 2016 to get to where it wants to be.

Achleitner, also a part-time professor who often dresses more like an academic than sharp-suited banker, has asked for patience as the reforms take effect. "The success of a strategy cannot be measured by quarterly results," he said.

Germany's financial watchdog Bafin recently appeared dissatisfied with progress. It criticized the bank in a confidential report leaked to local media. In it, the watchdog said Deutsche failed to practice what it preached, namely, promoting cultural change but not firing senior staff who oversaw divisions implicated in an interest-rate scandal.

Dieter Hein, an independent equity analyst at Fairesearch, said both Jain and Achleitner need to be replaced to clearly show that Deutsche Bank has transformed itself.

"This cultural transformation is not credible and indeed won't be credible in the future unless Deutsche Bank replaces Anshu Jain and Paul Achleitner," Hein said. Both, Hein said, were integral parts of the system that created the crisis.

But leaving aside Deutsche's cultural problems, there is little doubt that corporate Germany and Berlin want Europe to have a strong investment bank to protect its interests on the world stage.

Deutsche Boerse's Faber, for example, said Bafin's harsh tone toward Germany's financial flagship should not be mistaken for lack of support for having a big, German bank.

"There is no risk of failure. It would be suicidal for corporate Germany," he said.

(Reporting by Thomas Atkins, editing by Jane Merriman)

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