German shareholder association to press ahead with governance audit at Deutsche Bank

Move comes amid a damning report from the regulator regarding the Libor scandal

German shareholder association DSW is pressing ahead with a plan to have Deutsche Bank audited to find out whether the bank’s governance has been strengthened to prevent future scandals like Libor rigging.

At Deutsche’s annual general meeting (AGM) last May, a shareholder proposal from the DSW seeking the audit failed to get majority support. It got 14.35% of the votes cast, including those from two big institutional investors – PGGM of the Netherlands and Canada’s British Columbia Investment Management Corp (see previous report).

But as DSW already represented more than €100,000 worth of share capital in Deutsche going into the AGM, the association may legally request a Frankfurt court to initiate the audit. “We’re preparing the request this week and after the BaFin report, we feel very good about its chances of success,” DSW Vice President Klaus Nieding told German news agency DPA. DSW spokesman Jürgen Kurz later clarified that the request would be filed by this autumn.

Nieding was in any case referring to a new report by German financial regulator BaFin showing that the Libor scandal occurred because of negligence on the part of several former and current bank executives. BaFin also blasted the executives for failing to take its investigation into the Libor scandal seriously.A month before the AGM, Deutsche was fined a record $2.5bn (€2.3bn) for the Libor scandal and ordered to dismiss seven staff. Then about ten days after the AGM, Anshu Jain was asked to resign as Chief Executive. The reason: Jain was in charge of Deutsche’s investment banking division when the alleged Libor rigging happened. He was replaced by John Cryan, a former Chief Financial Officer of Swiss bank UBS.

Responding to the BaFin report, Deutsche downplayed its importance. “It contains statements taken out of context. And since the scandals broke, we have taken steps to address the concerns about negligence. It would therefore be wrong to draw conclusions about the bank or a particular manager,” the bank said.

If the Frankfurt court accepts DSW’s request for an audit, it will name the company that will carry it out. DSW had wanted BDO, an accounting firm and business consultancy also based in Frankfurt. All told, the DSW has 25,000 retail and institutional investors in Germany as members.

Asked why the DSW wanted the audit after Jain’s resignation, Kurz said executives were still working at Deutsche who were there during the Libor scandal. “If the bank were to voluntarily agree to an audit, our move wouldn’t be necessary. We still see people at the bank who are part of the old culture. And the effort to change that culture still has not borne fruit,” said Kurz.