Print
Email
Discuss this article ( Comments)
Former executives at what used to be Dresdner Kleinwort either haven’t gotten the message or refuse to abide by it. Here it is again: when you have helped manage a financial firm driven to the public trough for survival, it’s uncool to gulp down huge bonuses at a time of historic losses.
Not caring that their one-time employer now is on Germany’s dole, a trio of former London-based managers of Dresdner Kleinwort have filed suits in the UK to get what they say they deserve: bonuses and severance pay.
All ex-members of the executive committee, their claims total almost $19.6m. That brings to eight the former executives of the investment bank suing in London. Where is Andrew Cuomo when we need him?
That they were granted those bonuses is hard to dispute. In letters beginning in August and dated as recently as January, Dresdner spelled out how much in bonuses and severance it would pay them. In February, after Commerzbank AG took over Dresdner, a different letter arrived.
The bank has decided it is in the best interests of DKIB, Dresdner Bank and Commerzbank AG that no 2008 bonuses, whether contractual or discretionary, will be paid to executive committee members, it said, according to two of the lawsuits.
When some of the bank managers wouldn’t take no for an answer, another letter showed up. Given the scale of the losses, Dresdner wrote, the bank believes that you are required to act in the best interests of DKIB.
OK, so what counts more, the bank’s promise to reward an executive, or the executive’s duty to put the banks welfare above his own?
Morally, the answer is clear.
It’s not justifiable to sue, Wolfgang Gerke, president of the Bavarian Centre of Finance in Munich, said in April about a similar lawsuit filed in Frankfurt by Dresdner Bank’s former capital markets chief, Jens-Peter Neumann. Dresdner Bank executives caused huge losses and deserve a penalty, not a bonus. But is that a legal argument?
There are those letters containing promises of more pay, written even after it was becoming clear that Dresdner Kleinwort and its parent bank were in trouble, even as Commerzbank was preparing to take it over.
And yet it looks like the bank might argue in court that an executive’s fiduciary duty to the bank trumps promises made to him. The bank’s letters and public statements are full of phrases like ‘responsibility’ and ‘fiduciary’ and ‘best interests’.
In backing off bonuses and severance packages, the bank’s letters to the ex-executives keep insisting that their first responsibility is to the bank, not themselves.
Dresdner’s investment banking operations lost $8.7bn last year, which is one reason the German government pumped $25.6bn into Commerzbank.
Not his fault, says one of the plaintiffs, Eduardo Listorti. He ran the fixed income, currencies and commodities department and generated a record $1.5bn in revenue with a lower headcount and less capital than the previous year, his lawsuit says.
He’s going after the $9.15m in bonuses the bank told him he would get by the end of March. And because he lost his job as a result of the merger, the bank wrote to Listorti that he would get another $158,500 in severance by April 7.
Then came the backpedalling. Forget the bonuses. If he even wanted to collect severance, Listorti would have to sign a waiver giving up any claim to the bonuses. When he refused, the bank withheld his severance pay, too, saying he had no contractual or statutory right to it, anyway.
You can see that things are getting rather nasty.
However well Listortis’ unit performed, the same can’t be said for the rest of the firm. And yet, managers who ran the losing departments are suing too.
Commerzbank’s executives were no doubt peeved about taking on Dresdner’s losses, especially given that the Dresdner management board members got more pay than Commerzbank’s.
At least some Dresdner Kleinwort executives got the message loud and clear. Former chief executive officer Stefan Jentzsch said no thanks to his 2008 bonus. So did his counterpart at Dresdner Bank, Herbert Walter.
That is an example the others should have followed. Instead, they’ll be in court demanding reward when they should be offering apologies.
Ann Woolner is a Bloomberg news columnist. The opinions expressed are her own.
