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Investment Bank Chief Garth Ritchie Defies Gravity at Deutsche Bank

Steven Arons, Donal Griffin and Sonali Basak
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Investment Bank Chief Garth Ritchie Defies Gravity at Deutsche Bank

(Bloomberg) -- Garth Ritchie kept rising at Deutsche Bank AG long after the investment-banking division he leads began to fall. Gravity may finally be catching up.Ritchie, 50, has gained more and more power since 2005, helping to shape the investment bank even as it began sinking under legal probes, mounting costs and poor performance. He came close to leaving Germany’s biggest lender last year. Instead, he was promoted.Now, after climbing from the rowdy floor of the Johannesburg Stock Exchange to the upper reaches of one of the world’s biggest banks, his career may have stalled. Chief Executive Officer Christian Sewing is considering whether to replace him and other management board members, Bloomberg News reported last week. Investors have criticized Ritchie’s generous paycheck for last year, a period when shares fell by more than half. Adding to his woes, German prosecutors earlier this month identified him among about 80 suspects in a sprawling probe into alleged tax crimes.Ritchie’s supporters point to his passion, loyalty and perseverance when explaining his ascent and say he has brought stability at the top of the investment bank. Yet trading revenue fell by one-third under his leadership, and a fifth restructuring in just over four years is in the works.Some of the revenue decline was the result of decisions to stop offering products such as securitized trading, and elevated funding costs at Deutsche Bank coupled with challenges across the banking industry exacerbated the situation. The performance of the division headed by Ritchie was broadly in line with the market if adjusted for those effects, several people said. Still, some of Ritchie’s decisions compounded Deutsche Bank’s struggles, analysts say.“How has he survived?’’ said Chris Wheeler, who worked for three decades as a bank analyst in London. “This is perplexing in a business that is unforgiving. Since the crisis, he has moved up the pecking order, taking more and more responsibility. However, the performance of the trading businesses has not improved. In fact, it has deteriorated.”Favoritism, BackstabbingThis account is based on conversations with more than a dozen people familiar with the bank, including Ritchie supporters and critics. Ritchie declined to comment for this story, as did Charlie Olivier, a spokesman for Deutsche Bank in London.Ritchie prospered during a decade of turmoil for European lenders, outlasting colleagues and rivals in what one Deutsche Bank trader described as a “Game of Thrones’’ environment rife with favoritism and backstabbing. Just last year, Sewing promoted the silver-haired executive to deputy CEO and made him sole head of the investment bank, placing him in charge of a division that accounts for about half of the firm’s revenue. A few months later, his contract was renewed for five years, even though several investors made it clear they were unhappy with the appointment, according to people briefed on their views.Ritchie’s rise began in Johannesburg, where he excelled in rugby and finance. After graduating from the University of Port Elizabeth in the early 1990s, he went to work for Fergusson Bros. brokerage. Ritchie sat in a booth above the floor of the Johannesburg exchange, writing up complex equity trades and keeping binoculars close at hand to view the prices of securities on the board, his former boss, Niall Smith, recalled. “I expected a lot of him at that stage, and he delivered,’’ Smith said.Ritchie joined Deutsche Bank in 1996 and moved to the firm’s trading heart in London. He became head of European equities in a 2005 reshuffle and then global co-head after another overhaul on the eve of the financial crisis. In 2010, under CEO Josef Ackermann, he took sole control of the equities business and joined an executive committee overseeing the investment bank then run by Anshu Jain.Mirror TradesFive years later, in a restructuring designed to shore up the bank after years of scandal, Ritchie was promoted to head all trading businesses. Yet another shakeup came in 2017. Probes into interest-rate rigging and alleged Russian money laundering didn’t stop his ascent, and he was appointed co-head of the investment bank.Many of the issues that led to the bank paying more than $18 billion in fines and legal costs didn’t involve Ritchie’s equities unit. But the Russian mirror trades did. Ritchie helped oversee Deutsche Bank’s Russian equities business during the years when employees in Moscow ran a scheme that regulators called “highly suggestive of financial crime.” They said the bank shepherded more than $10 billion out of the country through stock transactions in which a Deutsche Bank counterparty in Russia would buy blue-chip shares for rubles, while the same stocks would be sold in London for dollars.Deutsche Bank executives, who missed a number of red flags, didn’t move to bolster controls until 2016, the New York Department of Financial Services said. The U.S regulator and the U.K. Financial Conduct Authority fined the lender about $630 million as a result of the trades.Internally, the matter was deemed a breakdown of Deutsche Bank’s rules, not poor oversight by Ritchie, according to people familiar with the matter.Straight-Talking, PragmaticRitchie’s rise has been cheered on by many of his colleagues, who describe him as a straight-talking and pragmatic manager willing to help out on pitches to clients.Under Ritchie’s leadership, the investment bank cut its balance sheet, reduced costs, stabilized senior management ranks and remediated many control issues, several people said. Others compared his tenure favorably with more chaotic eras in the past.Deutsche Bank Chairman Paul Achleitner was a driving force behind Ritchie’s 2015 elevation to the management board, according to people familiar with the matter. He was said to be impressed by Ritchie’s performance in late 2016, when the lender scrambled to retain client confidence amid a dispute with the U.S. Department of Justice over a settlement tied to the mishandling of mortgage-backed securities during the 2008 financial crisis.Some aren’t as positive. Revenue at Ritchie’s division slid 8% in 2018, and results from trading were lower than the industry average. His pay for the year more than doubled to 9 million euros ($10 million), including a bonus of 250,000 euros a month for his work on Brexit preparations. Outrage over his pay package was palpable at last month’s annual general meeting when only 61% of Deutsche Bank investors voted in favor of returning him to the board -- no other member got a lower approval rating.All European investment banks have struggled with low interest rates and competition from U.S. rivals. And Ritchie faced headwinds beyond his control, including higher funding costs, weakened credit ratings and a decision before his appointment to sever ties with thousands of clients and pull out of many countries.But some of Ritchie’s decisions have taken their toll. He has hung on to Deutsche Bank’s troubled U.S. operations and the equities-trading business, even though the latter has posted 15 straight declines in quarterly revenue. The business lost about $750 million last year, people familiar with the matter have said. Many analysts and investors have long urged the bank to make deeper cuts in those areas.Compensation CostsSlow progress in improving controls has been another hallmark of Ritchie’s division, even though the bank boosted know-your-customer staff. Sewing last year appointed a new chief operating officer, Frank Kuhnke, to speed up documentation of client relationships -- an area that was partly Ritchie’s responsibility.Other members of Deutsche Bank’s management board have also jousted with Ritchie over compensation costs at the investment bank. In 2017, he secured a round of special annual bonuses to shore up morale among traders and bankers. Yet the payouts contributed to the lender’s third consecutive annual loss, a major setback that precipitated then-CEO John Cryan’s ouster.“Ritchie shares responsibility for the destruction of shareholder value because he was responsible for the investment bank’s strategy,’’ said Lutz Roehmeyer, who helps manage 700 million euros including Deutsche Bank shares and bonds at Capitulum Asset Management in Berlin.Cum-Ex ProbeProsecutors in Cologne, Germany, have lit another fire for Ritchie. They made him –- and scores of other current and former Deutsche Bank employees –- a suspect in an industrywide probe into alleged tax crimes that took place through so-called Cum-Ex trades. Lawmakers say the transactions, which profited from double dividend-tax refunds, cost the German state at least 10 billion euros in revenue.According to the Cologne probe, Deutsche Bank had close links to some hedge funds that did nothing but Cum-Ex trades, lending them money and even sharing in some of the profits, Bloomberg has reported. Ritchie was among the most senior executives at the equities business from 2008 through 2011, when most of the trades took place.In a June 11 statement to Bloomberg, Ritchie denied being “personally involved’’ in Cum-Ex transactions and said he was confident the probe would show “no personal wrongdoing.’’ Deutsche Bank has said it “has not participated in an organized Cum-Ex market,’’ though it confirmed it was involved in Cum-Ex transactions of its clients. The bank also said prosecutors only started the probe to avoid running into statute of limitation issues.Ritchie’s fate will be decided in the next few weeks. Bloomberg News reported last week that Sewing may take over some of his responsibilities, and several people, including Yanni Pipilis, head of fixed-income trading, have been mentioned as possible replacements. Meanwhile, Ritchie soldiers on, telling people that he’s sticking around until Sewing says otherwise.(Adds chart after 21st paragraph.)\--With assistance from Nicholas Comfort and Karin Matussek.To contact the reporters on this story: Steven Arons in Frankfurt at sarons@bloomberg.net;Donal Griffin in London at dgriffin10@bloomberg.net;Sonali Basak in New York at sbasak7@bloomberg.netTo contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Robert Friedman, Ross LarsenFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

(Bloomberg) -- Garth Ritchie kept rising at Deutsche Bank AG long after the investment-banking division he leads began to fall. Gravity may finally be catching up.

Ritchie, 50, has gained more and more power since 2005, helping to shape the investment bank even as it began sinking under legal probes, mounting costs and poor performance. He came close to leaving Germany’s biggest lender last year. Instead, he was promoted.

Now, after climbing from the rowdy floor of the Johannesburg Stock Exchange to the upper reaches of one of the world’s biggest banks, his career may have stalled. Chief Executive Officer Christian Sewing is considering whether to replace him and other management board members, Bloomberg News reported last week. Investors have criticized Ritchie’s generous paycheck for last year, a period when shares fell by more than half. Adding to his woes, German prosecutors earlier this month identified him among about 80 suspects in a sprawling probe into alleged tax crimes.

Ritchie’s supporters point to his passion, loyalty and perseverance when explaining his ascent and say he has brought stability at the top of the investment bank. Yet trading revenue fell by one-third under his leadership, and a fifth restructuring in just over four years is in the works.

Some of the revenue decline was the result of decisions to stop offering products such as securitized trading, and elevated funding costs at Deutsche Bank coupled with challenges across the banking industry exacerbated the situation. The performance of the division headed by Ritchie was broadly in line with the market if adjusted for those effects, several people said. Still, some of Ritchie’s decisions compounded Deutsche Bank’s struggles, analysts say.

“How has he survived?’’ said Chris Wheeler, who worked for three decades as a bank analyst in London. “This is perplexing in a business that is unforgiving. Since the crisis, he has moved up the pecking order, taking more and more responsibility. However, the performance of the trading businesses has not improved. In fact, it has deteriorated.”

Favoritism, Backstabbing

This account is based on conversations with more than a dozen people familiar with the bank, including Ritchie supporters and critics. Ritchie declined to comment for this story, as did Charlie Olivier, a spokesman for Deutsche Bank in London.

Ritchie prospered during a decade of turmoil for European lenders, outlasting colleagues and rivals in what one Deutsche Bank trader described as a “Game of Thrones’’ environment rife with favoritism and backstabbing. Just last year, Sewing promoted the silver-haired executive to deputy CEO and made him sole head of the investment bank, placing him in charge of a division that accounts for about half of the firm’s revenue. A few months later, his contract was renewed for five years, even though several investors made it clear they were unhappy with the appointment, according to people briefed on their views.

Ritchie’s rise began in Johannesburg, where he excelled in rugby and finance. After graduating from the University of Port Elizabeth in the early 1990s, he went to work for Fergusson Bros. brokerage. Ritchie sat in a booth above the floor of the Johannesburg exchange, writing up complex equity trades and keeping binoculars close at hand to view the prices of securities on the board, his former boss, Niall Smith, recalled. “I expected a lot of him at that stage, and he delivered,’’ Smith said.

Ritchie joined Deutsche Bank in 1996 and moved to the firm’s trading heart in London. He became head of European equities in a 2005 reshuffle and then global co-head after another overhaul on the eve of the financial crisis. In 2010, under CEO Josef Ackermann, he took sole control of the equities business and joined an executive committee overseeing the investment bank then run by Anshu Jain.

Mirror Trades

Five years later, in a restructuring designed to shore up the bank after years of scandal, Ritchie was promoted to head all trading businesses. Yet another shakeup came in 2017. Probes into interest-rate rigging and alleged Russian money laundering didn’t stop his ascent, and he was appointed co-head of the investment bank.

Many of the issues that led to the bank paying more than $18 billion in fines and legal costs didn’t involve Ritchie’s equities unit. But the Russian mirror trades did. Ritchie helped oversee Deutsche Bank’s Russian equities business during the years when employees in Moscow ran a scheme that regulators called “highly suggestive of financial crime.” They said the bank shepherded more than $10 billion out of the country through stock transactions in which a Deutsche Bank counterparty in Russia would buy blue-chip shares for rubles, while the same stocks would be sold in London for dollars.

Deutsche Bank executives, who missed a number of red flags, didn’t move to bolster controls until 2016, the New York Department of Financial Services said. The U.S regulator and the U.K. Financial Conduct Authority fined the lender about $630 million as a result of the trades.

Internally, the matter was deemed a breakdown of Deutsche Bank’s rules, not poor oversight by Ritchie, according to people familiar with the matter.

Straight-Talking, Pragmatic

Ritchie’s rise has been cheered on by many of his colleagues, who describe him as a straight-talking and pragmatic manager willing to help out on pitches to clients.

Under Ritchie’s leadership, the investment bank cut its balance sheet, reduced costs, stabilized senior management ranks and remediated many control issues, several people said. Others compared his tenure favorably with more chaotic eras in the past.

Deutsche Bank Chairman Paul Achleitner was a driving force behind Ritchie’s 2015 elevation to the management board, according to people familiar with the matter. He was said to be impressed by Ritchie’s performance in late 2016, when the lender scrambled to retain client confidence amid a dispute with the U.S. Department of Justice over a settlement tied to the mishandling of mortgage-backed securities during the 2008 financial crisis.

Some aren’t as positive. Revenue at Ritchie’s division slid 8% in 2018, and results from trading were lower than the industry average. His pay for the year more than doubled to 9 million euros ($10 million), including a bonus of 250,000 euros a month for his work on Brexit preparations. Outrage over his pay package was palpable at last month’s annual general meeting when only 61% of Deutsche Bank investors voted in favor of returning him to the board -- no other member got a lower approval rating.

All European investment banks have struggled with low interest rates and competition from U.S. rivals. And Ritchie faced headwinds beyond his control, including higher funding costs, weakened credit ratings and a decision before his appointment to sever ties with thousands of clients and pull out of many countries.

But some of Ritchie’s decisions have taken their toll. He has hung on to Deutsche Bank’s troubled U.S. operations and the equities-trading business, even though the latter has posted 15 straight declines in quarterly revenue. The business lost about $750 million last year, people familiar with the matter have said. Many analysts and investors have long urged the bank to make deeper cuts in those areas.

Compensation Costs

Slow progress in improving controls has been another hallmark of Ritchie’s division, even though the bank boosted know-your-customer staff. Sewing last year appointed a new chief operating officer, Frank Kuhnke, to speed up documentation of client relationships -- an area that was partly Ritchie’s responsibility.

Other members of Deutsche Bank’s management board have also jousted with Ritchie over compensation costs at the investment bank. In 2017, he secured a round of special annual bonuses to shore up morale among traders and bankers. Yet the payouts contributed to the lender’s third consecutive annual loss, a major setback that precipitated then-CEO John Cryan’s ouster.

“Ritchie shares responsibility for the destruction of shareholder value because he was responsible for the investment bank’s strategy,’’ said Lutz Roehmeyer, who helps manage 700 million euros including Deutsche Bank shares and bonds at Capitulum Asset Management in Berlin.

Cum-Ex Probe

Prosecutors in Cologne, Germany, have lit another fire for Ritchie. They made him –- and scores of other current and former Deutsche Bank employees –- a suspect in an industrywide probe into alleged tax crimes that took place through so-called Cum-Ex trades. Lawmakers say the transactions, which profited from double dividend-tax refunds, cost the German state at least 10 billion euros in revenue.

According to the Cologne probe, Deutsche Bank had close links to some hedge funds that did nothing but Cum-Ex trades, lending them money and even sharing in some of the profits, Bloomberg has reported. Ritchie was among the most senior executives at the equities business from 2008 through 2011, when most of the trades took place.

In a June 11 statement to Bloomberg, Ritchie denied being “personally involved’’ in Cum-Ex transactions and said he was confident the probe would show “no personal wrongdoing.’’ Deutsche Bank has said it “has not participated in an organized Cum-Ex market,’’ though it confirmed it was involved in Cum-Ex transactions of its clients. The bank also said prosecutors only started the probe to avoid running into statute of limitation issues.

Ritchie’s fate will be decided in the next few weeks. Bloomberg News reported last week that Sewing may take over some of his responsibilities, and several people, including Yanni Pipilis, head of fixed-income trading, have been mentioned as possible replacements. Meanwhile, Ritchie soldiers on, telling people that he’s sticking around until Sewing says otherwise.

(Adds chart after 21st paragraph.)

--With assistance from Nicholas Comfort and Karin Matussek.

To contact the reporters on this story: Steven Arons in Frankfurt at sarons@bloomberg.net;Donal Griffin in London at dgriffin10@bloomberg.net;Sonali Basak in New York at sbasak7@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Robert Friedman, Ross Larsen

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.