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The Outsiders

Three foreigners -- Indian, Swiss and American -- have taken Deutsche Bank far beyond its German roots. Their goal is to fashion the world's leading investment bank. But can they break into Wall Street's elite?

Josef Ackermann was sitting in his office at Deutsche Bank's Frankfurt headquarters on September 11, 2001, when he heard that two airplanes had hit the World Trade Center in New York. He watched the television in horror as the twin towers collapsed. Debris from the south tower tore a gash in Deutsche's own 40-story U.S. building, across Liberty Street from Ground Zero.

Beyond the immense tragedy of the terrorist attack, the event posed a daunting challenge to Deutsche. The bank had spent billions of dollars over the previous decade in an unsuccessful effort to break into the bulge bracket of Wall Street's investment banks. With its staff scattered in makeshift quarters across Manhattan, the bank's ambitions seemed likely to be frustrated once again.

Unbowed, Ackermann, then Deutsche's head of investment banking, decided to redouble his efforts, reaching out to his stunned bankers in New York. With U.S. airspace still closed, he and his wife took a private jet to Halifax, Nova Scotia, then hopped aboard one of the first flights into New York. He wanted to show his colleagues that he was as determined as ever to penetrate the U.S. market.

"I came over as soon as we could fly," recalls Ackermann, who with his senior U.S. managers spent three or four weeks touring the bank's offices and meeting with employees. "That was the moment to show commitment," he says.

Five years later Deutsche's commitment is beyond doubt. The bank spent $610 million in December 2001 to acquire a new U.S. headquarters building from J.P. Morgan Chase & Co. at 60 Wall Street, making Deutsche one of the few major players still based in the historic financial district, along with Goldman, Sachs & Co. and Merrill Lynch & Co. The bank has also contributed $15 million to the planned $500 million World Trade Center Memorial, one of the largest donations to the project.

Even more notably, the bank's heavy investment in the U.S. -- including the $9 billion purchase of Bankers Trust in 1999 -- appears finally to be paying off. Deutsche, a leading fixed-income trader and underwriter in Europe and Asia, has climbed steadily in U.S. league tables, rising to eighth place in 2005, with an estimated $530 million in revenues and a 6 percent market share, according to financial data provider Dealogic. It rose to fourth place in the high-yield market last year, serving as book runner on $6.6 billion worth of junk bonds, or 8.4 percent of the market. It is gaining in equities, boosted by the poaching last year of an eight-person team led by Robert Karofsky, the former head of cash equity trading at Morgan Stanley. The bank's focus on fee-spinning buyout firms has proved especially astute: Deutsche was a lead underwriter on at least portions of the financing of the ten largest U.S. leveraged buyouts last year, including the $15 billion acquisition of car rental company Hertz Corp. by a consortium of private equity firms, the biggest LBO since Kohlberg, Kravis, Roberts & Co.'s $26 billion buyout of RJR Nabisco in 1989.

"Deutsche Bank's been very effective for us," says Hamilton (Tony) James, president of Blackstone Group, which this spring raised the world's biggest LBO fund at $13.5 billion-plus. "They've been smartly aggressive with their capital. It's definitely a firm with a hot hand."

Ackermann, 58, now Deutsche's CEO, capital markets guru Anshu Jain and banking impresario Michael Cohrs, the investment banking co-heads, are gearing up for a final assault on Wall Street. And their ambition is anything but modest: They want to seize a place in the global bulge bracket alongside such titans as Goldman, Morgan Stanley, Merrill Lynch, Citigroup and J.P. Morgan Chase. To do that, they know Deutsche must become a leading player in the U.S. markets, a goal that has enticed, and eluded, it and other foreign aspirants for years.

"We have battled ceaselessly in the past ten years to narrow the gap with our U.S. rivals, but that gap is still there in the U.S.," says Jain, 43, the bank's head of global markets. "We want to become very credible in the U.S. -- top five or six -- and No. 1 in Europe and Asia. That would make us the world's best investment bank."

Grandiose? Perhaps. But Deutsche's goal of global leadership no longer appears fanciful. League tables are notoriously imperfect measures of achievement, and banks don't report investment banking revenues in a directly comparable manner, but by several measures Deutsche is already within striking distance of its objective. Jeremy Sigee, an investment banking analyst at Citigroup in London, estimates that the bank had 12 percent of the $115 billion global market for investment banking revenues last year, putting it third behind Citi and Goldman -- and well ahead of Continental rivals UBS and Credit Suisse Group (Nos. 6 and 9). In sales and trading of bonds, equity, derivatives, currencies and commodities, Deutsche rang up E10.6 billion ($12.6 billion) in revenues last year, second only to Goldman, which had $14.1 billion. The German bank increased its investment banking revenues by 19 percent last year, better than all but two of its rivals -- Merrill Lynch and Lehman Brothers.

"They are much stronger than people perceive them to be," Sigee says of Deutsche. "And they're actually gaining market share."

Even more important, Deutsche is making money -- good money -- these days. Once notorious for overstaffing and for its competing fiefdoms in Frankfurt and London, the bank has slashed its head count by 14,000, or 18 percent, over the past three years. It cut 2,700 positions last year, the first of a three-year restructuring designed to cut costs by E900 million annually.

The belt-tightening helped Deutsche boost net income by 53 percent in 2005, to E3.8 billion. Crucially, Ackermann hit his much-touted goal of boosting pretax return on equity to 25 percent last year, up from a lowly 4 percent in 2002. What's more, Deutsche had a blowout first quarter, even by the industry's hot standards. The investment bank's sales and trading revenues jumped 37 percent to E4.4 billion, with equities alone surging 90 percent. Deutsche's overall ROE was a lofty 40 percent, compared with 30 percent in the first quarter of 2005; net income surged 55 percent to E1.7 billion.

The emergence of Deutsche as a global investment banking powerhouse marks an extraordinary achievement: a sweeping managerial -- and cultural -- transformation of a proud but once all-too-provincial German lender. This dramatic change is personified by the three executives -- all outsiders to the bank's traditional ways -- who have led the rise: Ackermann, a Swiss who is the first non-German to lead Deutsche in its 136-year history; Jain, an Indian who made his mark as a derivatives specialist at Merrill Lynch in New York before following his mentor, the late Edson Mitchell, to Deutsche in London in 1995; and Cohrs, 49, an American who earned his stripes at Goldman Sachs in New York and London and at the former British merchant bank S.G. Warburg & Co. before joining Deutsche in 1995.

Together this unlikely trio has built a thriving corporate culture that is as distinct from the bank's German roots as it is from the American-dominated ranks of its Wall Street rivals. Deutsche's 12-man group executive committee includes three Swiss, three Americans, one Indian and five Germans.

"I don't think there's another firm that's as multinational as Deutsche," says Cohrs.

The bank has long had international ambitions, but until recent years it was a very German institution, with the vast bulk of its business geared to servicing the needs of Germany's leading companies, in many of which the bank had shareholdings. As late as 1995, Deutsche earned 69 percent of its revenues at home and a further 20 percent in Europe. The Americas and Asia chipped in a measly 11 percent.

To change that mix and build its business, the bank spent extravagantly, buying the U.K.'s Morgan Grenfell in 1989 and Bankers Trust a decade later. It also paid lavish guaranteed bonuses to attract hundreds of bankers in the '90s, including Frank Quattrone, the king of high-tech IPOs who later jumped to Credit Suisse First Boston and fell afoul of the U.S. Justice Department. Deutsche never achieved the broad-based breakthrough it sought, however, and was roiled by friction between its London- and New York­based investment bankers and the executives in Frankfurt running its core German retail and commercial businesses. That rift surfaced most dramatically when the investment bankers mutinied against Deutsche's planned E30 billion merger with Dresdner Bank in 2000, scotching the deal.

Today, though, the investment bank sits comfortably atop the corporate hierarchy, generating two thirds of revenues and three quarters of profits. Ackermann underscored the business's preeminence in September 2005 when he abandoned a long-stated goal of achieving a 60-40 balance between investment and retail banking. To penetrate the top ranks in the U.S., Ackermann, Jain and Cohrs are looking to build on their gains in fixed income, targeting the booming market for mortgage-backed securities in particular. And they are determined to bolster the bank's modest M&A performance by leveraging relationships with buyout firms, the leading merger players today, and hiring bankers in selected areas including energy, financial institutions and industrial companies.

As an outsider, Ackermann was able to shake up Deutsche more radically than his predecessors. He built up the bank's London-based investment banking operation and used Bankers Trust to gain presence in the U.S. market. After he was named to succeed Rolf Breuer as chief executive in 2002, Ackermann cut the bank's ties to corporate Germany, selling off much of its equity interests and insisting that future loans be made on market terms rather than at concessional rates. He also reshaped the bank's management board -- traditionally, a large, consensus-driven body headed by a speaker, or first among equals -- into a lean group, with himself as a powerful, American-style CEO. And he has appointed a cadre of experienced international bankers, like Jain, Cohrs and Kevin Parker, the American investment banker who runs the bank's asset management arm, to sit on the executive committee.

"He could do things that a typical product of the German establishment would not have been able to do," says Hans-Jörg Rudloff, chairman of Barclays Capital, who worked with Ackermann at Credit Suisse in the 1980s and early '90s. "He smiles and has a very pleasant face, but he has an iron will."

Thanks to his efforts, Deutsche has a very different profile today. The bank derived 35 percent of its E26 billion in revenues last year from Europe ex-Germany, while the Americas and Asia contributed 26 percent and 10 percent, respectively. Germany's input? A modest 29 percent. Investment banking generated 73 percent of the bank's pretax profits, or E4.8 billion; retail banking and wealth management contributed the remainder.

Deutsche's new look, and its newfound profitability, have grabbed investors' interest. The bank's long-languishing stock price has risen 50 percent over the past year, to E96.01 in late April, exceeding the 31 percent average rise for the 44 largest European banks during that period.

Still, Deutsche remains a less valuable franchise than most of its competitors, leaving it potentially vulnerable to acquisition at a time of growing consolidation in Europe's banking industry. The bank's market capitalization of E49.4 billion ranks it just 12th among European banks. It is less than one quarter the size of Citigroup, whose former chairman, Sandy Weill, sounded out then­German chancellor Gerhard Schröder about a possible takeover in 2003.

Ackermann bristles at the suggestion that Deutsche lacks critical mass, especially compared with Citigroup. He asks a pointed question: Did Citi's Mexican retail franchise help it compete for the mandate to lead the initial public offering of shares in Industrial & Commercial Bank of China? Clearly not, as Deutsche recently won the mandate for one of this year's biggest IPOs, along with Credit Suisse and Merrill Lynch, after Ackermann made a direct pitch to ICBC chairman Jiang Jianqing. "Are we strong enough in the businesses where we compete?" he says. "Of course we are. We can compete in any transaction globally in sales and trading and investment banking. We can compete with, and beat, competitors with much larger market caps."

Investors have warmed to cross-border consolidation in Europe, Ackermann acknowledges, citing the positive reaction to UniCredit's E19.2 billion acquisition last year of HVB Group, Germany's second-largest bank. What's more, Deutsche's failed bid for Banca Commerciala Romana (Austria's Erste Bank won the Romanian bank with a E3.75 billion offer in November) suggests the bank wants to increase its retail base but hasn't decided how aggressively it should pursue growth.

Ackermann insists he doesn't need a big transaction, though, and intends to pursue organic growth both in investment banking and in retail -- Deutsche is currently expanding its branch network in Italy, Poland and India. "I am fully convinced that if we deliver in terms of return, profitability and growth, our share price will continue to develop in a way that will make investors happy," he says.

Deutsche faces other challenges that could knock it off its stride. The investment bank's aggressive expansion has caused a number of regulatory problems: The U.K.'s Financial Services Authority last month slapped Deutsche with a hefty £6.4 million ($11.1 million) fine for two trading infractions, including one in which the bank's proprietary trading desk propped up the share price of Swedish truck maker Scania while its equity desk was seeking to place with investors a £1.1 billion block of Scania shares that the bank had bought from Volvo Group.

Separately, the bank has established new reputational risk committees in Europe, the Americas and Asia to review major transactions in the wake of Deutsche's involvement in two controversial bank takeover bids last year. Deutsche helped Banca Popolare Italiana in its offer for Banca Antonveneta by underwriting part of a E1.5 billion capital increase and buying several equity stakes from BPI; Deutsche also extended a credit line worth several hundred million euros to Stefano Ricucci, a real estate investor who backed BPI's bid. Former BPI chief executive Gianpiero Fiorani was arrested in December on allegations of market manipulation related to the bid, a case that also led to the resignation of Bank of Italy governor Antonio Fazio. Ricucci was arrested last month on allegations of market rigging connected with his failed attempt last year to take over RCS Mediagroup, a major Italian publisher. Deutsche executives insist that its transactions for BPI complied with Italian law. Separately, stock market regulator Consob ruled in December that Deutsche had acted in concert with Italian insurer Unipol in its attempted takeover of Banca Nazionale del Lavoro by helping the company acquire BNL shares; Deutsche has appealed the ruling, saying it provided standard financial services.

The German bank also faces a number of potentially costly claims, including a lawsuit filed by former pay-TV magnate Leo Kirch, who claims that negative comments by then-CEO Breuer precipitated the collapse of his Kirch Group in 2002. That case prompted Breuer to resign as chairman last month; he was replaced by Deutsche's CFO, Clemens Börsig. Stuart Graham, a banking analyst at Merrill Lynch in London, estimates Deutsche will have to pay about E1 billion to settle the Kirch claim and other cases, including claims stemming from its bond underwriting for the failed dairy firm Parmalat in Italy and the bank's role in financing fraudulent tax shelters in the U.S. in the late '90s and early part of this decade. (In March, Deutsche restated its 2005 earnings, reducing net income by E250 million, to take a provision to cover potential liabilities over the tax shelters.)

And finally, there is a question mark hanging over Ackermann's future because of his role in approving E57 million in bonus payments to executives at Mannesmann after the German telecommunications company was acquired by the U.K.'s Vodafone for a record E180 billion in 2000. A Düsseldorf court acquitted Ackermann and the other Mannesmann directors on charges of unlawfully authorizing the payments, but Germany's Supreme Court approved an appeal of the verdict in December, and a retrial is expected early next year. A guilty verdict would prompt Ackermann's departure and force the bank to make a difficult choice of successor among Jain, who would be virtually uncontested if the appointment were based on profitability, or senior German executives like Jürgen Fitschen, who oversees Deutsche's regional managers worldwide, and Rainer Neske, the bank's head of retail.

No one at Deutsche wants to contemplate that prospect. The supervisory board has expressed its full support for Ackermann and extended his contract in January by three years, to 2010. Other executives note that the three-month trial in 2004 didn't affect the bank or Ackermann's ability to manage, and they don't anticipate anything different from the retrial.

"We've been through this before, and we came through fine," says Jain. "We're stronger now than we were before."

ACKERMANN GREW UP IN THE SMALL TOWN OF Mels in eastern Switzerland. The son of a doctor, he studied economics at the nearby University of Saint Gallen, where he obtained a doctorate in 1977, and then joined Credit Suisse on a fast track to senior management. After stints in New York, London and Zurich, he was made general director and member of the board in 1990 and chief executive three years later at the age of 45. He left the bank abruptly in 1996, however, after a struggle with chairman Rainer Gut over a proposed restructuring that would have eroded Ackermann's power base by separating investment and private banking from Credit Suisse's commercial banking operations. "Gut couldn't stand anyone throwing some shadow on his light," says one banker familiar with the clash.

Ackermann wasn't idle for long. Breuer, then Deutsche's CEO-designate, hired him straight onto the management board and gave him the task of building up the then-fledgling investment bank. He proceeded to do so in a way that transformed Deutsche's culture. He gave free rein to his lieutenants to build a powerful, London-based trading operation, first under Mitchell, who ran the bank's fixed-income business until his death in a plane crash in December 2000, and then under his successor, Jain. When Breuer acquired Bankers Trust in 1999 to shore up the bank's feeble U.S. presence, Ackermann oversaw its integration, buying an apartment in Manhattan to underscore his commitment.

Throughout the late '90s and the early part of this decade, many investment analysts and even some senior Deutsche executives in Germany questioned the investment banking strategy, believing that Deutsche was throwing money away in an elusive quest to join the global elite. "There was a lot of resistance internally and externally, that's for sure," Ackermann recalls. But he adds, "I always felt that was the only chance for Deutsche Bank. If a large economy like Germany wanted a homegrown bank which could play a global role, it could only have been Deutsche Bank."

As an agent for change at the country's largest bank, Ackermann has been subjected to no small degree of personal criticism in Germany, where he serves as a convenient whipping boy for the evils of global capitalism. The German press attacked him three years ago when his E8.3 million compensation was first made public (he received E11.9 million in 2005), and German politicians vilified him last year when he revealed plans to cut 6,400 jobs at the same time the bank was announcing an 87 percent jump in net income for 2004. He brushed aside the critics and publicly argued the case for economic reform ahead of Germany's general election last September.

The criticism has ebbed dramatically of late, thanks largely to last year's acquisition of HVB Group by UniCredit -- which brought home the reality of just how weak Germany's banking industry is on a global level -- and Deutsche's own strong performance.

The transformation of Deutsche hit a milestone of sorts in September when Ackermann acknowledged the investment bank's preeminence at a conference in Frankfurt and abandoned the bank's oft-declared goal of achieving a 60-40 balance between investment and retail banking. Most analysts had long since regarded Deutsche as primarily an investment bank, given that the business has generated three quarters of the profits in recent years, but some worried that Deutsche might pursue a costly retail acquisition or put the brakes on its investment bankers to achieve a better business balance. Ditching the 60-40 target ended the uncertainty and indicated that Deutsche was finally comfortable with its makeover.

"It was the perennial question of our identity," Ackermann recalls. "I felt we should have the confidence to describe what we are. We are a global investment bank -- one of the leading ones -- and we have a very strong and profitable private client franchise." Investors certainly liked the message: The bank's stock has risen 28 percent since the Frankfurt conference.

Deutsche's London- and New York­based bankers welcome the symbolic importance of Ackermann's statement, even if they say it had little practical significance for their business. "I believe that was key to the rerating of our stock," says Jain.

AS THE HEAD OF DEUTSCHE'S MOST PROFITABLE business, Jain gets no small credit for the rise in the bank's share price. A bureaucrat's son from Jaipur, India, about 260 kilometers southwest of New Delhi, Jain studied economics at Shri Ram College of Commerce at the University of Delhi before earning an MBA at the University of Massachusetts Amherst's Isenberg School of Management in 1985. There he learned about the then-budding field of options from one of the leading academics in the field, professor Thomas Schneeweis.

"We were having a revolution in financial innovation, and Anshu was a part of that," Schneeweis says. "Anshu showed entrepreneurial spirit from the get-go. He always wanted to explain things beyond what was in a textbook." Schneeweis is head of the school's Center for International Securities and Derivatives Markets, which was started in 1997 with donations from, among other alumni, Jain and Michael Philipp, a former Deutsche and Merrill colleague of Jain's who today is CEO of Credit Suisse for Europe, the Middle East and Africa.

With Schneeweis' help, Jain landed his first job as a research analyst in 1985 at Kidder, Peabody & Co., then a leading player in the options business. Three years later he moved to Merrill Lynch as a derivatives strategist and trader under Mitchell. Jain followed his mentor to Deutsche and rose steadily to become head of fixed-income sales and trading at the end of 2000, when Mitchell's death threw the business into turmoil.

The loss of the charismatic Mitchell stunned colleagues, many of whom had come to Deutsche because of his track record and intense loyalty to strong performers. It also led to a power struggle between Jain and Grant Kvalheim, another Mitchell protégé, who ran debt underwriting. Jain prevailed and took charge of the primary and secondary debt business when Kvalheim left in May 2001 for Barclays Capital, where he is global head of investment banking and credit products.

Jain has pushed Deutsche aggressively into higher-margin structured products, which use the bank's derivatives prowess to create tailored products for borrowers and investors alike. The bank is a leading player in credit default swaps, which provide insurance against the risk of corporate default, and in collateralized debt obligations, which are securities backed by loans or bonds that are sold in different tranches of credit risk. Intellectual capital, rather than sheer balance-sheet strength, is increasingly what drives the capital markets, Jain asserts. He says that high-tech financial products generate some 60 to 65 percent of the investment bank's revenues, compared with as little as 10 percent for proprietary trading.

With the fixed-income engine humming along, Jain has been focusing his attention on equity since Ackermann added that division to his markets portfolio in late 2004 in an effort to enhance earnings. Jain's first move was to meet with 50 or so of the bank's top equity clients and ask what they wanted. "It was clear to me that we were not strategic about the resources we were allocating to them," he says.

Jain's response was to integrate the equity and fixed-income operations, creating unified sales teams to handle major clients and merging equity and credit research. Not only did that cut costs, but the new approach -- which has been adopted by some other Wall Street firms -- matches the more integrated approach of hedge fund investors, who increasingly engage in arbitrage between a given company's debt and equity. "We believe we have superior insights from this," Jain says.

The restructuring has cut costs without hurting the investment bank's revenue growth. Sales and trading revenue rose 21 percent last year, to E10.6 billion, with fixed-income, currency and commodity revenues rising 16 percent, to E7.3 billion, and equity growing 33 percent, to E3.3 billion. The cost-income ratio dropped to 79 percent in 2005 from 85 percent a year earlier.

In addition to building up Deutsche's U.S. business, Jain is looking to drive growth through offshoring and expansion in emerging markets. He wants to outsource virtually all the bank's mechanical functions, including algorithmic trading, to Indian information technology companies, which he believes will cut costs and increase quality.

Deutsche also is intent on creating mini­investment banking outposts, with origination and distribution capabilities and a full suite of investment products, in most major emerging markets. The bank's December purchase of the remaining 60 percent of United Financial Group in Russia was a key part of Deutsche's global-local strategy. The UFG stake, first acquired in 2004, has helped Deutsche win a leading share of the burgeoning market for Russian IPOs and mergers, including Gazprom's $13 billion acquisition of Sibneft last year.

"We would not have been able to get all of those M&A deals and IPO mandates if we hadn't had Deutsche's capital, expertise and brand," says Charles Ryan, the American banker who helped found UFG and who serves as Deutsche's CEO in Russia. "It's obvious today that Russia is hot. Three years ago Deutsche Bank was the only one to see it."

As head of global banking, which includes Deutsche's corporate finance and advisory business, Cohrs has the most room for improvement. The bank's deal makers have long played second fiddle to its traders. In equity underwriting Deutsche led the European league table last year by acting as book runner on 71 deals that raised a total of $19.5 billion, but it ranked only seventh in the high-margin IPO business, according to Dealogic; in the U.S. the bank was a modest tenth in overall equity underwriting. Deutsche ranked eighth globally in mergers and acquisitions last year, advising on 217 deals worth $361 billion; by revenues, the firm placed ninth with an estimated $578 million.

A Harvard Business School MBA, Cohrs spent ten years at Goldman Sachs, where he rose to become London-based head of equity capital markets in Europe, then jumped to S.G. Warburg as co-head of equity capital markets in 1991 before moving to Deutsche in 1995. He has played a key role in a number of equity issues, such as the $15 billion IPO of Deutsche Telekom in 1996.

In his current post Cohrs pushed through the merger of Deutsche's commercial and investment banking efforts, creating single teams to pitch to major corporations everything from loans to debt and equity underwritings. The tighter focus helped global banking boost operating profits by 30 percent in 2005, but the bank's lagging ranking in M&A, particularly in the U.S., is still a problem. "We're not where we want to be," Cohrs admits.

To improve his rank in M&A, Cohrs needs to build on the bank's success in penetrating the U.S. market for leveraged buyouts. He and his U.S. managers targeted LBO firms earlier this decade because finance plays such a crucial role in winning buyout mandates, and Deutsche's balance sheet and strong franchise in high-yield debt were important advantages. The subsequent surge in LBO activity proved that gamble to be astute: Buyout funds accounted for 17 percent of global M&A last year and represented the single largest source of investment banking fees.

"We got it right in terms of the clients and products that we targeted," says Thomas Gahan, U.S. head of corporate and investment banking. "Blackstone or KKR could potentially throw off the same fee pool in a year as the entire telecoms industry."

Among other transactions, Deutsche last year advised a buyout consortium led by Silver Lake Partners on the $11.3 billion acquisition of SunGard Data Systems, a software provider to the financial services industry, and a consortium led by Clayton, Dubilier & Rice on its $15 billion acquisition of Hertz.

Deutsche helped finance the SunGard deal by acting as the lead manager for $3 billion worth of high-yield bonds. The bank needed skill and nerve to shepherd that bond deal because the high-yield market was effectively shut to issuers for several weeks between the signing of the SunGard buyout in March 2005 and the bond offering in July, after General Motors Corp. was downgraded to junk status.

"They provided very good advice when markets got soft," says Greg Mondre, a managing director at Silver Lake. "They didn't panic."

Cohrs and his colleagues hope to build on the bank's relationships with buyout firms to win more M&A advisory and equity underwriting mandates as those firms float or sell off various holdings.

Deutsche has also been hiring bankers in selected industry sectors, including energy, health care, telecommunications and media, and real estate and gaming. The bank plans to hire as many as 40 bankers this year, says James DeNaut, co-head of U.S. corporate finance, and aims to cover 75 percent of the U.S. market, by market capitalization, within two years, up from its current 50 percent. But executives acknowledge that it will be difficult to win market share from Deutsche's Wall Street rivals, which enjoy closer relationships with U.S. companies.

"It's a long process," says Gahan. "It's one thing to build our trading capabilities. It's another thing to build an integrated investment bank." The bank has scored significant gains in U.S. equity since taking advantage of the turmoil at Morgan Stanley last year to lure Karofsky and his team of traders. Deutsche doubled its share of equity volume on the New York Stock Exchange last year, to about 4 percent. "Anshu made a bold move," one U.S. banker says of the hiring of Karofsky's team. "It harks back to the Edson days." Adds Ackermann, "Skeptics said years ago, 'Forget the United States, you will never make it.' And I always said, yes we will."

The investment bank's performance, and Ackermann's looming trial date in Germany, inevitably raise questions of succession that most at Deutsche would prefer not to confront. The Swiss executive has succeeded in remodeling Deutsche because he commands respect equally among German executives in Frankfurt and investment bankers in London and New York, something no other senior executive at the bank can claim.

Jain and Cohrs should be candidates for the top job, based on the investment bank's dominance, but neither has any significant involvement in Germany or speaks German. The two most-widely mentioned German candidates, Fitschen and Neske, carry relatively little clout with the investment bankers, although the recovery of Deutsche's German retail business, particularly its DWS mutual fund arm, bolsters Neske's credentials. "To me, the only thing that matters in Germany is Rainer Neske's business," says one Deutsche investment banker in London. "People make way too much of our relationship with Germany."

Jain, who most outside analysts regard as having the best claim to the CEO post, says he is satisfied with his current position. Privately, most investment bankers say it would be damaging if the bank based the succession on nationality. "I don't think shareholders would be happy if we said the criteria to be the CEO were to be a German and a German speaker," says one London banker. "The stock would go down."

Ackermann illustrates the complex baggage that comes with his position. He bemoans the criticism he has taken within Germany for raising the bank's international competitiveness, but he also relishes the stature that comes with the job of running the country's biggest bank, which gives him ready access to corporate executives and heads of state around the world.

To lead Deutsche, he says, "you have to understand European culture, German culture as well as international markets. You have to understand the retail culture, as well as the investment banking culture. You probably have to be willing to live in Germany, and you have to be comfortable working with a two-tiered board system." Ackermann says the bank has adequate succession plans in place and notes how smoothly the board replaced Breuer with Börsig. But he insists he is determined to clear his name in the German courts and continue to lead Deutsche. Most insiders are keeping their fingers crossed that he's right.

As one of Deutsche's German bankers says of Ackermann, "It's not easy to see a figure like him that can keep the whole thing together."