Investors told not to back Deutsche Bank's board

Deutsche Bank is facing a potential investor revolt at its annual general meeting later this month, after an influential adviser urged shareholders not to approve the actions of its management board during 2014.

ISS told investors to refuse to back the board in a vote, because of both Deutsche's failings in the Libor rigging scandal, for which it last month paid a record $2.5bn fine, and its co-chief-executive's involvement in a fraud trial. Jurgen Fitschen appeared in court last week and has denied the charges against him.

Under the German corporate code, a vote to "discharge" the board of a company is deemed a vote of confidence in its management and policies. But a vote against discharge is the strongest way in which shareholders can express displeasure at an AGM.

ISS acknowledged that Deutsche was not alone in its entanglements with regulators, and that neither the management nor the supervisory board had been found to have "any knowledge of misconduct [in relation to Libor] at the time it was taking place".

Nevertheless, it argued that the buck should stop with the management board, which is headed jointly by Mr Fitschen and Anshu Jain.

"The bank's unsatisfactory risk management [of] Libor-related issues - including the level of co-operation with investigating bodies . . . directly led to larger penalties and thus larger losses for shareholders - for which the management board bears ultimate responsibility," ISS wrote in a note to investors seen by the FT.

However, the adviser said that investors should not withhold their approval of Deutsche's supervisory board, chaired by Paul Achleitner, as many of its members joined after the Libor-related wrongdoing ceased.

"It does not appear appropriate to hold these supervisory board members responsible for legacy issues that predate their arrival at the bank," ISS explained.

One top 20 shareholder said that it had not yet decided how to vote at the Deutsche's AGM, which takes placed on May 21. But it added that the mood among investors towards Deutsche was "quite negative" at the moment.

A head of corporate governance at a UK institution, which does not hold shares in Deutsche, said the range of problems at the bank "goes to the heart of the crisis" in the industry.

"Whether it is the Libor scandal or other areas of mismanagement, Deutsche is an example of a company that needs a very strong board, which it arguably does not have," the executive said.

Deutsche declined to comment on the ISS recommendations, but has previously emphasised that the presumption of innocence applies to Mr Fitschen and the other former Deutsche employees involved in the fraud trial, and expressed its "deep regret" over Libor.

Glass Lewis, another shareholder adviser, has recommended that investors abstain from voting on whether or not to discharge Deutsche's management and supervisory boards.

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