Deutsche Bank is one of the biggest banks in the world, and it has a big IR department to match, with ten staff designated to talk to shareholders. Unusually for a Germany company, it also actually knows who those shareholders are, having decided last year to replace traditional anonymous bearer shares with registered stock.
Equally unusually, half of Deutsche Bank’s stock is held outside Germany. With a market cap of over e60 billion, it is listed in Austria, Britain, Belgium, France, Japan, Luxembourg, the Netherlands, and Switzerland. And it also has an over-the-counter ADR in New York.
Perhaps more typical of Germany is the team approach. Although the company’s web site has extensive information for investors, you will look in vain for the names of the individual members of the IR team, even though there is no doubt that the dynamic duo of Wolfram Schmitt, the head, and Wolfgang Schnorr, deputy head, are at its core.
Schmitt admits that this restraint reflects the traditional European or German way of doing it but he foreshadows the possibility of change. The whole web site is changing, and the plan is for the IR section to be integrated into the new concept and style. “At the moment it is only a one-way street, it’s not really interactive,” concedes Schmitt.
The team is not quite as big as it looks, since two of its members are part-time and a third, Stephen Davidson, is in New York, where he handled IR for Bankers Trust before Deutsche Bank acquired it. Originally it was mooted that the New York IR department be closed down but, taking its cue from other European companies, “We decided it made a lot of sense to have somebody in the same time zone picking up the phone for small American institutions and for recent Bankers Trust investors.” That entails a special effort to keep Davidson in the loop with e-mails and conference calls.
While in principle everybody on the IR team can do the same job, Schmitt agrees that there are different levels of experience represented, adding, “And you wouldn’t send out one of the juniors for a one-on-one with Fidelity.” Generally there’s been little specialization to date, but someone may soon be designated to deal with the retail side; and there’s already regional specialization, since it helps to have IROs speaking relevant languages.
Busy busy busy
The team deals with some three dozen analysts regularly, but find any number up to 80 turning up to their analyst meetings of which they held seven last year. Last year they also managed over 300 one-on-ones and made presentations to seven broker sponsored conferences and three retail investor fairs. Like many others, Deutsche Bank has noticed a growing strength on the buy side. “We love this because they are mostly very experienced people,” says Schmitt. “They don’t run out immediately and send e-mails to their clients. It’s a more long-term relationship built more on trust and on an ongoing debate. We have excellent relationships with them and it makes our life much more rewarding.”
So does Deutsche’s team approach militate against the personal relations with analysts that many US IROs pride themselves on? Schmitt sidesteps this, saying the issue is really one of prudence. “If we had the feeling that one of our team members was becoming too personal or was giving out sensitive information we hadn’t agreed to give out, we would simply replace him or her with somebody else for this contact. It’s not our style to really pamper somebody.” German disclosure standards anticipate recent US moves on selective disclosure, including Regulation FD. “We don’t have a history of leading or coaching certain analysts to make sure their estimates come close to the real numbers,” Schmitt says. And now German law has become even stricter on the need for any relevant information to go to everybody simultaneously. “We always have quite sensitive antennae,” Schnorr claims. “Even with frequent one-on-ones with the analysts, if there is information given that might be relevant for everybody, then we make sure it’s part of the next release.”
Of course the teamwork is an aspect even at board level, where the nine members are genuinely equal, and the CEO is at most “a little more equal than the others.” Occasionally US analysts need reminding of this, and have to be pointed in the direction of the appropriate board member rather than the highest “ranking” member.
Schmitt worked with the bank for nine years before joining the IR department three years ago. He worked alongside the previous head for a year before his retirement. By German standards, Schnorr is a pioneer IR veteran. An economist who has spent his entire working life with the bank, he joined the IR department nine years ago, when German IR was more embryonic than infant. Deutsche Bank was one of the founding members of the German IR association, Dirk, and Schmitt is also a member of Niri, “because of a global interest in IR.” He was involved in the setting up of the Conference Board’s IR council for Europe, too, and he’s now the council’s chairman. In the past he worked on strategic, and hence confidential, projects that he was not allowed to talk about. “Now for the last three years I’ve not been doing anything, but I talk about everything,” he jokes. More seriously, he explains that before the introduction of International Accounting Standards in 1995, IR’s main function was interpreting and explaining the numbers. Then, three years ago, Rolf-Ernst Breuer became executive chairman and effectively spokesman for the board, the closest thing to CEO. While noting that PR for Breuer was not top of the job description, Schmitt says, “Communication is close to his heart.” Schnorr chimes in with satisfaction, “And he’s a capital market guy, trained as a stockbroker, so it’s a home run for us.” Breuer reorganized the communications area and made IR one of the key pillars of his communication strategy. Now Schmitt wants it to enter the strategic arena. “Organizations that are ahead of the pack listen to what the capital markets think, what our owners are thinking,” he avers. “It’s very important that we should include this in our strategic formation process right from the beginning.”
Explaining expectations
Schmitt says building a strong equity culture at the bank is almost as important as this. “It’s sometimes the harder task to convince our top staff, or to show them what the market participants are looking for, what their expectations are. This is really a very important thing for us.” He recalls a recent off-site senior executive seminar at which a top analyst explained the expectations of the market. “It was one of the best discussions I’ve ever joined. We had a very good response from colleagues afterwards. Maybe for Americans it is boring stuff, because they do it all the time, but it was a good experience for us. It was our job to make this happen, then we could just relax really.”
He notes one measure of success: “Until three years ago we had to queue up in front of our CEO’s and CFO’s office to get slots to go out with them, but now all of our nine board members are available for communication with the capital market and investors.”
In addition Deutsche Bank itself was semi-devolved into five major divisions, each with its own board – the investment bank, a retail bank, an asset management division, and so on. Board members today include Americans like Edson Mitchell and Michael Philipp. “They understand investor relations, indeed they live investor relations. They love to go out with us and would like to see investors every week.”
Helping mould the new mindset have been the major changes in needs. The acquisition of Bankers Trust, for example, meant raising equity from investors for the first time in over a decade. Indeed, its high overseas ownership even ten years ago may have driven the bank’s IR edge. In the beginning, Schmitt says, “The IR department took care only of the foreign shareholders because we assumed that the domestic shareholders had much better information. Until two years ago only one or two of the big fund managers were prepared to stand up in a general meeting and demand or request things. But more and more institutions are now reacting like the Americans.” Schnorr adds that previously German fund managers “didn’t really want to see us or other investor relations people because a) they were under the assumption they already knew everything; and b) they didn’t have anything like buy-side research capacity.” Things have changed since then. Overall in Germany, “The IR function is much more important than it was five years ago when we clearly did not have an equity culture.”
The board is in discussion at the moment about targeting, and although the final verdict is not yet in, the assumption is that non-German holdings should increase, as should employee stakes (currently in the 3-4 percent range). Across Europe, the IR team found that holders regarded Deutsche Bank stock as a blue chip, an asset to be held for growth rather than for dividends. Asset managers building a balanced portfolio are bound to include Deutsche in their portfolios. “Maybe we are not the top runner over all industries, but it’s always a safe investment,” comments Schmitt.
Asking questions
The department knows that at least 23 percent of the bank’s holdings are held by over half a million private shareholders; and they suspect there may be more hiding behind bank nominees. Last year they sent out questionnaires to them, eliciting more than 80,000 stockholder replies. “We asked very simple things. Do you want more paper from us or e-mail? Do you want the annual meeting on a Saturday so people who are working can show up? Of course we also combined questions here with our market research people, sophisticated questions to find out the motivation for investment in us: image questions, long-term versus short-term investors. We used the responses to create a Shareholder Satisfaction Index for the annual report – we were one of the front runners among German companies to do this.”
The euro’s introduction has brought a shakeup of investors. Companies across the eurozone are seeing far more cross-border holdings, now there are no currency risks involved. But Schmitt notes that growth in non-German holdings has to some extent been counterbalanced by domestic investors lowering the Deutsche Bank share of their portfolios to build up other European bank stocks. “In the past two years we have seen a tremendous demand for discussions and one-on-ones from places like France, Spain, Italy, even Portugal. And our shareholder structure is moving in that direction.”
As for US investors, if they are prepared to buy European, “Then they know about currency risk – it’s not a big issue.” Interested investors include profit takers from Wall Street who have great, or at least reasonable, expectations of European markets. The same record that convinces European investors that the Bank is a gold standard investment attracts Americans worried by volatility in New York. And Schmitt, Schnorr and the others, even if they are one short of a soccer team, are happy to meet them to discuss their investment goals
