This week Deutsche Bank announced that Seth Waugh, the CEO of its American operations, will be stepping down. Mr. Waugh has served as CEO of Deutsche Bank Americas since April 2000. No reason was given for his departure. But, in a Financial Times article, Waugh was quoted as saying he wanted to spend more time with his family.
Discussing his own upcoming departure as Deutsche Bank CEO, Josef Ackermann has highlighted his intention to leave a clean slate for his successor. “I’m not one of the CEO camp who likes to leave with stellar results and leaves all the problems to the successors. I want to do it the other way around,” he recently told analysts. Ackermann’s success in this regard has gotten mixed reviews, but when it comes to last-minute legacy-polishing nobody will have a tougher job than Waugh.
As he prepares his return to family life, Deutsche Bank Americas faces a dizzying array of problems:
- The bank has so far failed to implement its plan to avoid new US capital requirements that came about due to the Collins Amendment in Dodd-Frank. Deutsche Bank’s US bank holding company, Taunus Corporation, has been operating well below the new standards, which will be phased in over the next several years. A Wall Street Journal report suggested that the bank would need as much as $20 billion to meet the capital requirements. In a conference call, shortly after the passage of the Act, the bank asserted that it would recapitalize Taunus with retained earnings. Nearly a year later, the bank appeared to shift course and, in a report to shareholders, disclosed a plan to maneuver around the new requirements altogether by reorganizing its US operations and deregistering Taunus as a bank holding company. Thus far, it seems that Deutsche has been unable to gain the necessary regulatory approvals for this plan. In its most recent conference call, the bank told analysts that the reorganization was “an on-going project” and had not yet been completed.
- Deutsche Bank may face serious litigation risks in the United States but unlike its US competitors, the bank has not been aggressively stocking away reserves for these risks. In the years leading up to the US foreclosure crisis, Deutsche Bank was a major player in the US mortgage backed securities industry. Through subsidiaries, it acted as an originator, sponsor, underwriter, and trustee of subprime and Alt-A US mortgages. Liabilities related to litigation surrounding losses in these mortgages could be significant.
- Deutsche Bank has faced unwelcome reputational risk in the United States. Housing activists and communities have condemned the bank’s foreclosure practices across the country. US congressional hearings have targeted the bank as an example of “troubling and sometimes abusive practices involving the origination or use of RMBS, COD, CDS, and ABX financial instruments.”
- Deutsche Bank remains entangled in the Las Vegas gaming market, having become the 100% owner of the Cosmopolitan resort and partial owner of Station Casinos LLC. The bank is also a creditor to both companies. Last fall, Deutsche Bank’s total credit exposure to just these two companies had reached $4.6 billion, a figure that was comparable to the bank’s sovereign debt holdings in the European periphery. Deutsche does not appear to have a clear strategy with respect to its casinos in Las Vegas. One of the companies, Station Casinos, has even begun a high-profile, aggressive anti-union campaign, even though its business relies heavily on local residents working in the Las Vegas hospitality industry, which is heavily unionized.
With these lingering problems facing Deutsche Bank in the U.S., is this the best time for Seth Waugh to step down? And how will Waugh’s successor deal with these issues?