It is March 10, 2011, and today I read that a German bank is discriminating against a top banker, a "rainmaker," because he is Indian. Anshu Jain is a 48 year old head of investment banking at Deutsche Bank and has generated hundreds of millions of Euros in fees for the bank since 1995.

Anshu was born in 1963 in the humble town of Jaipur, India and later studied economics at Shri Ram College of Commerce at Delhi University. He earned a bachelor's degree with honors in 1983 and then pursued a Masters in Finance at UMASS Amherst. He then started as an analyst in derivatives research at Kidder Peabody (now UBS), from 1985 to 1988. Anshu joined Merrill lynch in 1989, where he started the first hedge fund coverage group.

By 1995, Anshu joined Deutsche's markets business and stared a unit focusing on hedge funds and institutional derivatives, later becoming the head of fixed income sales and trading and global head of derivatives and emerging markets. In 2002, he joined the Deutsche Bank Group Executive Committee and became the head of Global markets and joint head of the Corporate & Investment Bank in 2004. Anshu's segment of Deutsche Bank's business generates 80% of the Company's revenues, and he still may be passed over for CEO.

Mr. Jain has been in the media under speculation that he could succeed Josef Ackerman, but the Company's Board of Directors won't have it. Key members of the bank's supervisory board are not in favor of an Indian born banker at the helm. They want to see the bank under more "traditional" leadership. The bank also wants to diversify revenues away from the profitable investment banking segment. Is this just an excuse to pass over Mr. Jain?

The next CEO of the 141 year old bank needs a 2/3 majority vote and approval by the 20 member advisory board. The board has 10 German labor representatives and 10 shareholder representatives.

According to Reuters, "In a written statement Deutsche Bank said selecting the CEO is a task which the "supervisory board is pursuing in an orderly and professional manner. A decision will be taken when the time is right. There is no urgency, given that Dr. Ackermann's contract runs for another two years."

BARCLAYS SOLUTION?

Investors, though, are sure to worry that the move could alienate the hard-charging Jain. Supervisory board chairman Clemens Boersig knows this, according to two people familiar with the supervisory board's thinking, and is working on ways to retain Jain and his colleague, Chief Risk officer Hugo Baenziger. In the end, however, "the supervisory board believes everybody is replaceable," a member of the supervisory board said on condition of remaining anonymous. The board feels it is too dangerous for the bank to rely on any one person. "You cannot be held to ransom," another person, who is familiar with the supervisory board's thinking, said.

Jain, who would not comment on the issue of succession, could well stay. He has had a hand in hiring most of the key staff at the investment bank, and his considerable stake in Deutsche in the form of shares and options gives him a vested interest in the place. But if he does walk, the bank hopes one of his proteges will step up in the same way that Jain himself emerged after his mentor Edson Mitchell died in a plane crash in December 2000. Most of Deutsche's top 15 investment bankers have been with the firm for more than a decade, something that should instill loyalty toward the firm and not only its leader, the person close to the supervisory board said.

In private conversations between supervisory board members and Deutsche Bank executives, there has been talk of a "Barclays" solution, named after a recent arrangement at British bank Barclays where John Varley, a Briton with connections to the political establishment, took the title of chief executive, while Robert Diamond, a powerful American investment banker, held de facto power in the background. Diamond finally took the reins from Varley two months ago.

"Perhaps one could whet Jain's appetite for a similar solution," one of the people close to the supervisory board said. "In the end we may have to divide up the role among different sets of shoulders," a supervisory board member said adding. "But we're not yet at that stage."

A decision on succession won't be made this year, another supervisory board member, who declined to be named, said.

The German establishment has long been skeptical of investment banking, a conviction that has hardened since the subprime debacle and the ensuing financial crisis. When the German government stepped in to bail out a raft of lenders including Hypo Real Estate, IKB and Commerzbank, many Germans pointed to "casino" style investment banks as the main culprits. Deutsche Bank, Germany's biggest, did not require a bailout itself, but had long been a lightning rod for criticism as Europe's largest economy moved away from old-fashioned "Rhineland Capitalism," in which a close-knit clique of bankers, politicians and company executives fostered business and dictated change in corporate Germany, toward a more cut-throat "Wall Street" model where shareholder return is the main driver of change.

A raft of supervisory board members believe Deutsche should focus solely on providing simple financial services to corporations and the "real economy," rather than dabbling in more complex and higher margin financial products. "Wall Street style capitalism doesn't have many friends on the supervisory board," a person close to the supervisory board said.

The opposing camp believes that Deutsche should be a place where gifted and risk-hungry bankers can make outsized bets to generate profits for themselves and shareholders. That view is often associated with Jain, who oversees some of the world's most talented bankers.

Perhaps crucially, members of the board's four person chairman's committee, which is formally tasked with drawing up the shortlist of CEO candidates, consists of only Germans: two labor representatives, chairman Boersig, and Tilman Todenhoefer, former deputy chairman of the board of management at Robert Bosch, an engineering company that specializes in high-tech automotive technologies and is known for its skeptical view of Wall Street-style capitalism.

Although not bestowed with formal powers to appoint the next leader, chief executive Ackermann and shareholder representatives on the supervisory board will have considerable influence over who makes it on to the shortlist, a person close to the supervisory board added.

A PILLAR OF THE GERMAN ESTABLISHMENT

For decades the system that helped steer Europe's largest economy was controlled by Deutsche Bank and insurer Allianz. Working with large German corporations in which the two financial institutions held stakes, the network of bankers and executives formed what became known as "Deutschland AG".

The system worked, in its own way. By holding large stakes in companies like Daimler-Benz, Siemens and Thyssen, Deutsche protected German industry from foreign takeovers and provided a system of mutual support in the event of large-scale bankruptcies. Market forces were an afterthought. When German Chancellor Helmut Schmidt decided Germany's aerospace companies needed to consolidate to stay competitive, he simply talked to then Deutsche boss Alfred Herrhausen, who promptly nudged Daimler-Benz to absorb the big aerospace and defense companies and form German aerospace company DASA.

Deutsche Bank's seats on corporate boards meant it could win mandates for bond and stock issuances and force changes when it saw the need. In one infamous incident, in 1987, Herrhausen dismissed Daimler-Benz chief Werner Breitschwerdt and installed another executive, Edzard Reuter in his place.

But by the 1990s, as German companies pushed more aggressively into global markets, they needed more sophisticated products even to meet simple needs such as currency or oil price hedging. When Ackermann joined Deutsche in 1996 he was tasked with transforming Germany's corporate fixer into a "global champion".

"Joe," as Ackermann is known by colleagues, had worked at SKA -- later to become Credit Suisse -- and liked to use tactics and strategy he learned as a Swiss army officer. He decided to accelerate a selloff of industrial stakes -- which made up half of Deutsche Bank's market value as late as 1998, and were proving a drag on the company's share price -- and use the proceeds to build up its core business of banking. The last significant holding -- a stake in Daimler -- was sold in October 2009.

GLOBAL EXPANSION WEAKENS LOCAL TIES

When Ackerman became the first non-German in the top job in 2002, his academic background and gentle demeanor masked an ambition to shake up the lender. He embarked on a radical program to boost the profitability of bread-and-butter corporate loans, even if that meant alienating established customers.

In early 2003, Ackermann, together with investment banking co-chiefs Jain and Michael Cohrs, and Baenziger, then head of credit risk, introduced the "loan exposure management group" to ensure that each loan to be approved was priced in accordance with international market standards, rather than traditional German ones, and to guarantee that the "overall customer relationship" was generating a 25 percent pre-tax return on equity. The move helped lift Deutsche's pre-tax return on equity to 14.7 percent today from just 1.1 percent back in 2002.

Competitors like Commerzbank also quietly introduced profitability targets for corporate loans. But it was -- and still is -- Deutsche that attracted the most criticism for abandoning the old system. Ackermann remains unrepentant. "As a bank with global operations that conducts more than 75 percent of its business outside of its home market, we have obligations to numerous stakeholders around the world," he told shareholders at Deutsche Bank's annual general meeting last May. "We have to carefully weigh up these obligations. Sometimes, in Germany, this can lead to criticism by the political community. We have to be able to take it."

One of Deutsche's key stakeholders is internal: golden boy Jain. A keen cricket fan, he built up what has become known within Deutsche as "Anshu's Army" from the original core of mostly American bankers who defected from Merrill Lynch in 1995. The defectors had followed Edson Mitchell, a brash American who demanded fierce loyalty from those who served under him.

Mitchell's team was instrumental in introducing a more aggressive Anglo-Saxon style of management which sacrificed long-term job security for eye-popping pay packages. Ackermann later cemented the new culture by transferring decision-making power away from the German "Vorstand", or management board, to a new committee known as the Group Executive Committee, dominated by London-based investment bankers.

The power of the investment banking arm became clear in 2000, when its senior officials sabotaged a signed 30 billion euro merger deal with Deutsche Bank's main rival, Dresdner Bank, because of overlaps in investment banking. Following a strategy meeting in Florida, Deutsche told Dresdner that of the 6,500 investment bankers at its investment banking unit Dresdner Kleinwort Wasserstein, Deutsche could only take 1,000, a person familiar with the conversation said.

Another clash between the Deutsche's management board and the supervisory board came in February 2004, when it emerged that Ackermann and senior executives had met Citigroup's chairman Sanford "Sandy" Weill, and chief executive Charles Price a few months earlier to discuss a takeover of Deutsche Bank. When Ackermann raised the possibility of a sale, members of the German-dominated supervisory board blocked the deal, arguing that Deutsche would be reduced to a local branch office of a New York bank.

As the investment banking arm has grown more powerful, Deutsche's center of gravity has shifted to London, where key staff including Baenziger and Jain spend most of their time, and where the company now employs more than 8,000 staff. Their London base helps Jain and Baenziger remain close to key clients. But has it also hampered their ability to build up a network of political and corporate contacts in Germany.

CASINO BANKING?

A sign of potential trouble emerged two years ago, when the supervisory board chose to dodge the issue of succession by extending Ackermann's contract until 2013. Some inside the bank blame that in part on Ackermann, who has not successfully nurtured a clear successor.

Tensions between the supervisory board and Deutsche's management have grown since 2008, when the global financial system went into meltdown. Deutsche was under extreme pressure to help rescue failing rivals. In mid-March 2008, while Ackermann was in New York, U.S. treasury secretary Henry "Hank" Paulson called him and tried to get Deutsche to buy Bear Stearns, a person familiar with the matter said. Later Deutsche was pushed to buy parts of Lehman. In both instances, Ackermann declined. Deutsche also turned down offers to buy parts of UBS in the second half of 2008, two senior executives familiar with the lender's thinking said. The Swiss bank was looking for fresh leadership and mulling a sale of its investment bank, but Deutsche preferred its wealth management assets, these people familiar with the talks said. Deutsche walked away when it couldn't get sufficient detail on balance sheet risks. Regulatory approval may also have been a hurdle, a senior Deutsche banker said.

Only months earlier the bank had been giving its traders a remarkable degree of leeway to place large directional bets, a strategy that had proved extremely successful, current and former employees of the global markets division said, also declining to be named. Proprietary traders -- small teams that bet with a bank's own money -- made up to 15 percent of revenues at the sales and trading division between 2002-2007, a senior banker familiar with Deutsche's strategy told Reuters.

At the sales and trading division, managers such as Boaz Weinstein, a former head of credit trading North America and Europe, and Greg Lippmann, global head of asset-backed securities trading and syndicate and collateralized debt obligations (CDOs), were particularly aggressive. Lippmann made a $1 billion bet against the subprime market, a gamble that started to come good in the second half of 2008 when global markets fell. Weinstein -- a chess fanatic known for taking teams of traders to Vegas for poker tournaments -- also had large positions running into the billions, a person familiar with his business said.

Single bets could be very large. One left the bank with 600 million euros of rates exposure, a former colleague who worked at Deutsche's credit trading division at the time told Reuters. This sort of extreme trading led The Economist to describe Deutsche as a "giant hedge fund" run by an "Indian bond junkie" in 2004, a view some could argue was not justified by the investment bank's relatively consistent performance over the past decade.

Things were less rosy at the proprietary and credit trading divisions during the financial crisis: they fueled Deutsche's 4.8 billion euro loss in the fourth quarter of 2008 and prompted its management board to abandon proprietary trading the same year -- months before regulators discussed a move in that direction.

Despite shedding almost a third of its risky assets between 2009 and 2010, Jain has managed to retain his top staff and win market share in key areas of investment banking. Research firm Greenwich Associates last year ranked Deutsche Bank No. 1 in U.S. bond trading. Profits from the corporate and investment bank have jumped from almost 4 billion euros in 2000, to a near record level of 6 billion euros in 2010, a testament to Jain's ability to deliver profits in extremely challenging market conditions, analysts and rivals say.

GERMAN REQUIRED

Ackermann's recent language indicates how difficult it has become to defend risk-taking. In countless speeches to the German business community and politicians, he has said the country "needs to decide whether it wants a globally successful investment bank or not."

But the son of a doctor from the village of Mels in Switzerland has also tried to ease tensions between business and politics. "Especially here in Germany where those responsible in business and politics live and work further apart geographically than in other countries, we must make a greater effort to listen to one another," he told the company's annual general meeting in Frankfurt in May. "Verbal attacks on so-called speculators and political rhetoric about a 'war' between governments and markets is not conducive to such a dialogue," he said.

Bundesbank president Axel Weber's name has surfaced as a potential candidate though critics on the supervisory board highlight his lack of experience running a commercial bank, as well as his recent clash with Merkel as weak points for such a candidacy.

Helmut Hipper, a fund manager at Frankfurt-based Union investment, thinks Deutsche should not leave it until the last minute to reveal who will take over: "For an institution like Deutsche it is important to announce a successor. Designating a candidate will provide security and predictability."

Also in the race with an outside chance are internal candidates such as Deutsche's Germany chief Juergen Fitschen, retail chief Rainer Neske or Chief Financial Officer Stefan Krause.

Whoever does get the job will need to be able to mediate between Berlin and Germany's financial players. That became clear during the credit crisis. In September 2008, Ackermann was involved in rescue talks for German lenders IKB and Hypo Real Estate. Discussions involved the then finance minister Peer Steinbrueck, regulator Jochen Sanio and representatives from the German banks.

"You need to speak German, period," a senior German financial figure who was familiar with these talks said. Ackermann himself, asked if the next chief of Deutsche Bank needs to speak German, said, "That's for the supervisory board to decide." He had found speaking German "helped."

Although Jain has been with the Frankfurt-based bank since 1995, he has never spoken a word of German in public and relies on a translation service during press conferences. Late last year when Jain made an appearance at a banking conference in Frankfurt he was asked "Sprechen Sie Deutsch?" a question designed to find out whether he had been brushing up his German. Jain dodged the answer with a smile and said, "I'm not going to go there," before walking away."

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