Twelve days into his job as co-CEO of Deutsche Bank AG, Anshu Jain stood beside Germany’s finance minister and in front of video images of lush forests and rolling rivers as hundreds of businessmen sang the national anthem.

Jain, an Indian-born British citizen who built a career as a London-based investment banker and speaks little German, remained silent as guests gathered for his debut speech last June at Berlin’s InterContinental hotel raised their voices in praise of the fatherland.

It was a moment that captured the 50-year-old banker’s dilemma: While he works to keep Germany’s biggest lender anchored in Europe’s largest economy, many Germans see him as an outsider selling products they don’t understand, Bloomberg Markets will report in its June issue.

“The contract between banks and society was broken during the crisis,” Jain told the audience. “Banks are now viewed with suspicion. That’s understandable. We have to work harder to prove our activities are safe.”

That task has since become harder. Jain, who helped build Deutsche Bank into one of the world’s biggest investment banks and scaled management peaks in an 18-year career at the Frankfurt-based company, is facing a raging storm over the alleged misdeeds of bankers, many dating from the time he led the securities unit. Anger over taxpayer bailouts and criminal behavior has stoked calls by lawmakers across Europe to break up the largest lenders.

Police raid

About 500 police and tax investigators raided Deutsche Bank offices in December in a probe of tax evasion in carbon markets. A Milan judge convicted the bank and three other firms that month of fraud in the sale of derivatives to hedge the city’s interest-rate risk.

The company has suspended or fired at least seven traders suspected of attempting to rig benchmark lending rates. And Germany’s central bank and top regulator are investigating allegations that Deutsche Bank hid losses during the financial crisis, people with knowledge of the matter said in April.

The bank says claims of covering up losses “are wholly unfounded.” It plans to appeal the verdict in Milan and says it is cooperating with prosecutors probing carbon markets. Jain, who became sole head of the corporate and investment bank in 2010 and hasn’t been accused of wrongdoing in any of the cases, said in January that he was sickened by rate-rigging at the world’s biggest banks. The firm’s own investigation found board members weren’t involved in attempts to manipulate rates.

Still, the cascade of bad news made Jain’s first year as co-CEO tumultuous, even as he improved capital ratios. The raids shook employees at Deutsche Bank and hurt the company’s image among Germans, many of whom cite the hyperinflation that haunted their parents after World War I and are wary of financial products that aren’t easily explained.

Deutsche Bank raised its litigation reserves to €2.4 billion ($3.1 billion) at the end of December from €800 million three months earlier. That expense, along with the cost of firing almost 2,000 employees and increasing capital, pushed the lender to a €2.5 billion fourth-quarter loss, its biggest since the three months following the collapse of Lehman Brothers Holdings Inc. in September 2008.

Jain’s decision

The loss also reflected Jain’s decision to write down the value of asset-management and investment-banking businesses the bank had acquired more than a decade ago and that had failed to meet expectations.

Deutsche Bank said April 29 that first-quarter profit rose 19 percent to €1.65 billion from a year earlier. The lender also announced it would raise as much as €4.8 billion by selling shares and subordinated instruments to boost capital levels.

“Jain runs the risk of becoming the face of the negative past of investment banking,” says Konrad Becker, an analyst at Merck Finck & Co. in Munich who has tracked German banks since 1990. “The fact that he led the investment bank over the period when such events took place causes some people’s foreheads to wrinkle with concern.”

All of this is playing out against the backdrop of German elections scheduled for September. Chancellor Angela Merkel is running for a third term against Social Democrat Peer Steinbrueck, who wants banks to separate securities units from retail arms to protect depositors from the risk of traders running up losses with wrong-way bets.

“Financial markets have lost proportion and perspective,” Steinbrueck said when he announced his plan last year.

U.K. regulators are pushing a similar plan, and European Central Bank governing council member Erkki Liikanen has proposed a version for the 27-nation European Union. The U.S. has passed rules curbing proprietary trading to prevent banks from putting depositors’ money at risk. “There’s a difference by degrees, but the reaction is similar in other industrialized countries,” says Thomas Mayer, a senior adviser at Deutsche Bank. “People all want to tame the beast.”

Merkel’s Christian Democratic Union, which has backed a milder option for banks to segregate proprietary trading, leads in the polls. Her re-election would make life easier for Jain and co-CEO Juergen Fitschen. They regularly tell reporters and politicians that a division would drive up borrowing expenses and cost the bank its ability to compete with global peers in offering companies an array of financial services.

Steinbrueck visited Deutsche Bank’s trading floor in London earlier this year. Jain gave Merkel a similar tour before she became chancellor in 2005, and he has met with her since becoming co-CEO.

Deutsche Bank, which at the end of 2012 had assets under accounting rules comparable to those of U.S. banks of €1.2 trillion — equivalent to 43 percent of Germany’s gross domestic product — could become too costly to rescue if it goes bust, proponents of a split say. Steinbrueck says that companies can cope with pricier loans and that the benefits of a safer financial system outweigh the consequences of banks’ losing a competitive edge.

While management can boost capital and bolster profits by cutting costs, the actions of governments, regulators and central banks have a greater influence, Jain has said. Jain’s defense of so-called universal banks has found support among some German companies.

In January, the biggest industry lobbying groups came out in favor of allowing corporate and investment banking to continue under one roof.

‘Free pass’

“As a society, we never really understood that banks have to make money,” says Christine Bortenlaenger, a former executive at the Munich stock exchange who now leads Deutsches Aktieninstitut, a financial lobbying group. “Politicians have been given a free pass to impose ever more financial regulation with the support of voters because of the lack of economic knowledge.”

Henri de Castries, CEO of French insurer Axa SA and a Deutsche Bank client, shares that view.

“Germany is a phenomenal exporter, and it is in Germany’s best interest to have strong banks,” de Castries says. “What’s at stake is the financing of the European economy.”

It won’t be easy for Jain to keep the trust of executives and ordinary Germans. He and Fitschen, a German banker 14 years his senior, inherited a laundry list of lawsuits and the lowest capital level among the nine biggest investment banks.

Jain spent most of his career in London, working with institutional clients. He sold interest-rate swaps and other products to hedge funds at Merrill Lynch & Co. before following his mentor, Edson Mitchell, to Deutsche Bank in 1995. After Mitchell died in a plane crash in December 2000, Jain took over as head of debt. In 2004, then-CEO Josef Ackermann promoted him to lead the combined debt, equity sales and trading unit. He became co-CEO in June 2012, succeeding Ackermann, who had held the top spot for a decade.

“Deutsche Bank’s past CEOs said investment bankers were needed, but they never had to justify themselves like today,” says Jan Hagen, a faculty member at the European School of Management and Technology in Berlin. “The challenge is to show that things have changed. Jain’s a lot tougher to sell to Germans than Fitschen.”

Fitschen, whose parents served beer and spirits to tradesmen at a village inn about 55 km from Hamburg, rebuilt the homestead, and his family has continued a tradition of trading horses. He strikes an informal tone in conversation and rarely uses prepared remarks when addressing an audience.

Intellectual rather than emotional

Jain, the son of a civil servant, was born in Jaipur, in India’s Rajasthan state. He studied economics at Sri Ram College of Commerce at Delhi University and earned a master’s degree in business administration from the University of Massachusetts, Amherst in 1985. He asks rhetorical questions in speeches and frequently appeals to the intellectual rather than emotional sensibilities of those he addresses.

He is the firm’s strategist and contact for regulators and investors. Fitschen is Deutsche Bank’s face in Germany.

“Jain comes across as a very different kind of person,” says Brun-Hagen Hennerkes, chairman of the Stuttgart-based Foundation for Family Businesses. “He seems to be developing the concepts in investment banking, while Fitschen is involved in implementation, as he knows us better.”

Fitschen earned the respect of German executives after spending a decade in Asia financing trade and working for corporate clients, Hennerkes says. Jain’s experience growing up in India and his time spent in London mean he has a perspective other bank CEOs don’t, says Axa’s de Castries, who uses Deutsche Bank as a counterparty in trades and as an adviser on deals.

“He has something quite unusual, which is an insight in both worlds, the emerging one and the major countries,” de Castries says. “It’s one thing to see it through the eyes of advisers who have exactly the same background as yours and to have it through the eyes of someone who knows both sides.”

Deutsche Bank’s focus on Europe means Jain can better explain the implications of the region’s debt crisis than his U.S. peers, say Steven Kandarian, CEO of MetLife Inc., and Robert Benmosche, CEO of American International Group Inc., two New York-based insurance companies that are clients.

Benmosche says he invited Jain to an AIG board meeting in London to discuss what the debt crisis could mean for the insurer’s business in Europe amid speculation that the common currency would splinter.

“Anshu is probably deeper in what is going on in the European markets than a number of the other bankers that we deal with,” says Kandarian, who has worked with the German lender to issue debt and equity for acquisitions, hedge its currency risk and help make investment decisions.

“He ticks a number of the key boxes, including providing us that global perspective.”

People who have met Jain often mention his sharp intellect and calm demeanor. His intelligence and sometimes blunt rebuttals can make opposing his view intimidating, say three people who have worked with him and who asked not to be identified, as their encounters weren’t public.

“Now, I have to win more people over, and you can’t do that by talking, you have to listen, too,” says Jain in an interview in Bonn, sitting in an office at Deutsche Postbank AG, the retail lender Deutsche Bank acquired in 2010. “Am I great at it? No. Am I getting better at it? I think I am.”

Jain, who speaks with a slight Indian accent, is married to a travel writer, has two children and retains a residence in London after moving to Frankfurt last year. He’s a vegetarian, having been raised in the Jain religion, an offshoot of Hinduism that rejects the caste system and gives adherents the last name Jain. He’s almost five years younger than the average age of CEOs at Germany’s 30 biggest public companies and one of nine non-Germans leading firms included in the benchmark DAX Index.

‘Great opportunity for Germany’

“Jain’s position at the top of Deutsche Bank can be a great opportunity for Germany,” the European School of Management and Technology’s Hagen says. “If he can pull it off, that will show that the bank and the country are places people are judged on their merit rather than background.”

Jain and Fitschen have focused on improving capital levels. They’ve sold holdings, reduced trading risk and adjusted internal models, with the approval of regulators, to reduce the amount of capital needed to absorb losses. The firm said April 29 that its Tier 1 common equity ratio strengthened to 8.8 percent as of March 31 from 7.8 percent at the end of last year. That compares with 8.4 percent at London-based Barclays PLC. A year earlier, Deutsche Bank was 0.9 percentage point behind Barclays under less stringent rules.

“We’ve closed the gap to the bottom of the peer group in six months, which is far faster than anyone thought we would have,” Jain says.

Deutsche Bank’s reliance on the German economy — expected by the International Monetary Fund to expand 0.6 percent this year while that of the euro area as a whole contracts — means assets are of a higher quality than peers’ and allows the bank to borrow on better terms than some competitors. Credit-default swaps on debt sold by Deutsche Bank cost about 30 basis points less than similar contracts on Barclays debt, data compiled by Bloomberg show. A basis point is 0.01 percentage point.

Being headquartered in a country with the financial strength to rescue the lender if it runs up losses helps, too, Hagen says. Deutsche Bank navigated the turmoil following the 2007 meltdown of the U.S. housing market without taking direct state aid.

Mutually beneficial

The relationship between the bank and Germany, where it generated 37 percent of its €33.7 billion of 2012 revenue, has been mutually beneficial. Depositors trust the lender with cash that helps finance its investment bank. Its fund managers promise returns on pension savings, which they can invest at a profit. Corporate bankers lend to German companies from which they can also win fees by advising on deals and products to reduce risk.

“Deutsche Bank’s reach runs from rural Baden-Wuerttemberg to Vietnam,” Hagen says. “Being a global bank with local roots is a huge advantage for the German economy and the bank.”

Jain’s goal is to keep Deutsche Bank among the top three securities firms. The bank had the largest share of the global foreign-exchange market as of November and overtook Barclays as the biggest bond trader last year, according to Greenwich Associates, which tracks investment-banking revenue.

While markets remain shell-shocked by the financial and sovereign-debt crises, Jain is betting that money managers and transaction bankers who help clients carry out payments will help lift profit.

Deutsche Bank combined its units that manage funds for the wealthy and for institutional investors in June under Michele Faissola, one of Jain’s lieutenants at the investment bank. Faissola, an Italian, told investors in Frankfurt in September that he would tap cash in emerging markets as well as from the superrich to boost pretax profit at his division to €1.7 billion in 2015 from €800 million in 2011.

Werner Steinmueller, head of transaction banking, told investors at the same conference that his unit is working to increase pretax profit to about €2.4 billion in 2015 from €1 billion in 2011 by providing more trade finance and foreign-exchange services.

The bank is trying to boost business with companies with €50 million or less in annual revenue that form the backbone of Germany’s economy. Deutsche Bank moved coverage of 11,500 such firms to its retail and corporate division from the investment bank in March and will offer services from 250 branches rather than regional centers.

Changing culture

Robert Rankin and Colin Fan, who run the investment bank, which accounts for 40 percent of the firm’s expenses, said in September that they plan to reduce costs to less than 65 percent of income in 2015 from 71 percent in 2011 by cutting pay and staff. They said the largest firms will benefit as capital rules force competitors to exit businesses, leaving the remaining banks with a bigger slice of fees.

Jain has sought to convince regulators, politicians and ordinary Germans he’s changing the culture of the bank in which he has thrived for so many years. That most of the litigation Deutsche Bank is grappling with stems from before 2009 shows efforts to prevent such behavior are working, he says.

The company has reduced bonuses, including Jain’s. The co-CEOs were awarded €4.9 million each for 2012. That represented a 50 percent cut for Jain, who was paid €9.8 million for 2011 as head of the investment bank, and a 16 percent increase for Fitschen, who ran the German business.

Jain’s path to the top wasn’t easy. Ackermann was opposed to Jain’s taking the job, on the grounds that he would tilt the lender’s focus too much toward investment banking, said two people at the bank with knowledge of the matter who asked not to be identified because the deliberations were private.

After a two-year struggle between then-Chairman Clemens Boersig and Ackermann, the board settled on co-CEOs. That was an attempt to balance the firm’s role as a trading house, with the majority of its revenue and employees outside Germany and competing with Goldman Sachs Group Inc., and a 143-year-old institution with deep ties to the country’s companies and political establishment.

Boersig also considered partnering Jain with Chief Financial Officer Stefan Krause, 50, or consumer-banking head Rainer Neske, 48, before picking Fitschen, according to the two people. Paul Achleitner, a 56-year-old Austrian, stepped down as CFO of Munich-based insurer Allianz SE in May to succeed Boersig. The former Goldman Sachs banker had worked with Deutsche Bank, advising the firm on a major step to becoming a global investment bank: the $9 billion purchase in 1998 of Bankers Trust Corp.

Fitschen’s contract will expire in 2015, at which point the supervisory board could ask him to stay on. Or Jain could continue as sole CEO or partner up again. Jain says he and Fitschen are concentrated on shoring up capital levels and stopping regulation from eroding Deutsche Bank’s business model rather than future management constellations.

“If at the end of 30 months we can look back and feel that we succeeded in repositioning the bank, that for me will be the greatest accomplishment of my career,” Jain says.

In the meantime, Jain is seeking a better understanding of what drives Germany. He’s working on improving his German, though he says his schedule hasn’t allowed him to make the progress he’d like to see. He has talked to academics and writers, according to one professor who says he and Jain discussed the country’s relationship with Israel and its World War II past. He’s also met with politicians in Berlin.

Learning German

At one such session last year, Jain and a group of younger, English-speaking lawmakers dispensed with their neckties to discuss over drinks the role of Deutsche Bank in Germany and globally, according to one colleague who attended the meeting.

“I’ve had a good relationship with the people here in Berlin for many years,” Jain said in November at a conference in the capital. “It isn’t as if I just turned up overnight.”

Although learning the language and the culture may help, for Jain to succeed — and perhaps get a chance to run the bank by himself one day — he’ll need to convince German retail and corporate clients of the value of being home to a global investment bank. That will take time, given the abuses of the recent past, says Hennerkes of the Foundation for Family Businesses and a 25-year veteran of Deutsche Bank’s advisory board for the Stuttgart region.

Hennerkes says he wants the lender to keep its investment bank, one focused on the needs of companies rather than the profits of its bankers.

“I come from a different world from Jain and the business he does,” Hennerkes says. “But I know Deutsche Bank needs investment banking to generate enough profit in order to also conduct its safer business around the world.”

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