Pioneer Briefing US Edition

Exclusive Interview: Josef Ackermann on Dax Record Highs, Interest Rate Speculation and Global Capital Market Risks


Good Morning,

In the early 21st century, a powerful force reshaped the business models of the private banking community, shifting their firms away from traditional lending to capital market financing. Critics compared banks to „casinos“ to highlight the risks. What they didn’t mention was the dry spell that awaited those who resisted the tide.

Frankfurt mourned as Deutsche Bank, once a pillar of German industry, struggled to make a profit. Its income came mainly from dividends on industrial holdings, while competition from public-sector savings banks and cooperatives squeezed lending profits.

It’s important to remember: The after tax profits fluctuated between €167 million in 2001 and just under €400 million in 2002. In his new book, “My Way,” Josef Ackermann reflects:

The Deutsche Bank was barely making any money operationally. The weakness in earnings was structural.

As the newly appointed CEO of Deutsche Bank in May 2002, Ackermann sought a new direction for the bank and identified the booming investment banking sector as an opportunity. And it was.

Within a short period, the bank achieved an after-tax profit of €6 billion. Ackermann proudly announced:

We have become the world’s second-largest investment bank in revenue.

Investors celebrated as the bank’s return on equity rose from 1% in 2002 to over 16% in 2004, 24% in 2005, 33% in 2006 and 29% in 2007– an unprecedented success.

Josef Ackermann © Anne Hufnagl

Despite the praise from the financial community, Ackermann was criticized in the media for being “greedy” and “excessive.” Nevertheless, he stayed strong. He saw himself and the company as risk takers: “Only with such profit margins can a bank take the industry’s inherent risks.”

However, the global phenomenon that transformed subprime mortgages into high-grade securities gained such momentum that it created dangerous speculative bubbles worldwide.

Lehman Brothers, Bear Stearns, German banks such as the Industrie-Kredit-Bank (Industrial Loan Bank), and other public banks were going downhill. This ultimately led to the global financial crisis, which triggered investigations into financial misconduct worldwide – including at Deutsche Bank.

Eine Infografik mit dem Titel: The Shock of the Stock Markets

Performance of the Dow Jones index after the impact of the Lehman bankruptcy on September 15, 2008, in percent

During the Ackermann era, the Deutsche Bank raked in around €25 billion in profits while also approximately €14 billion in fines and legal settlements had to be paid. Ackermann became one of the best paid managers in Germany and even paid €500,000 in church taxes at the height of his career. However, he now sees these incidents as “a black mark on his white vest.” In his memoir, “My Way,” he reflects openly on his triumphs and setbacks. It's a compelling read.

This week, the 76-year-old Swiss visited our media ship, the Pioneer One. We delved into the past, but more importantly, we discussed his perspective on today’s capital markets and the inherent risks of investing.

Eine Infografik mit dem Titel: Dax at an All-Time High

Performance of the Dax since July 1, 1988, indexed in points

The Pioneer: Yesterday, the Dax surpassed 18,000 points for the first time, reaching an all-time high. This was achieved despite economic fragility and high-interest rates. Why?

Ackermann: The financial markets have interpreted rising wage costs as a potential catalyst for increased consumer spending, which is crucial for economic growth in the foreseeable future. In addition, the U.S. economy is growing.

Eine Infografik mit dem Titel: USA vs. Germany

The percentage GDP growth in Germany and the USA since 2018 in comparison

The Pioneer: But the German economy is shrinking.

Ackermann: Germany heavily depends on exports and benefits from a weak euro. Profits and revenues from the dollar zone are now much higher in euro terms than five to ten years ago. The trajectory is clear: without a stimulus to boost growth in the eurozone, and given Germany’s continued economic weakness, the prospects for a stronger euro appear bleak. Nevertheless, this scenario favors exporters and is currently supporting the performance of the Dax.

Eine Infografik mit dem Titel: Germany as an Export Nation

German foreign trade, in trillions of euros

The Pioneer: What needs to be done in Germany to stimulate growth?

Ackermann: There must be a resurgence of effort, personal responsibility and commitment. It seems that Germany has lost faith in the market economy. As John F. Kennedy once famously said:

Ask not what your country can do for you. Ask what you can do for your country.

It seems more important than ever to ask that question. When I hear people advocating for a 30-hour work week for health reasons, that’s not the Germany I know and once admired.

The Pioneer: We get into trouble when fundamentals diverge too much from stock prices. In the words of former Federal Reserve Chairman Alan Greenspan, are we witnessing another case of “irrational exuberance” in the capital markets?

Ackermann: Risks are always on the horizon, but those unwilling to take risks will soon find themselves out of business. Financial markets are inherently risky. The question of how long the music will last is always relevant.

Josef Ackermann aboard our media ship, the Pioneer One © Anne Hufnagl

The Pioneer: How long is the music going to last?

Ackermann: The music will continue until some regional crisis escalates. We face a myriad of potentially significant risks around the world, from the conflict in Ukraine to the situation in Gaza. However, corporate earnings will remain relatively strong, partly due to currency relations and restructuring. So, I am still optimistic about the equity markets this year.

The Pioneer: Capital markets still need to price in geopolitical risks.

Ackermann: What’s happening in Gaza and Ukraine is terrible, but from the point of view of the financial markets, it’s localized. It could lead to a widespread firestorm in the energy sector, but I don’t see that happening.

The Pioneer: The markets are currently banking on things going well. Is speculation just part of the game?

Ackermann: Speculating is not inherently wrong – it’s part of the market. There are always two sides: those speculating on an upward movement and those on a downward one. That’s how the market works.

The Pioneer: The West is increasingly turning away from its leading trade partner, China. Is there a risk for the capital markets?

Ackermann: The U.S. is turning away from Europe. If Trump comes to power, he will likely refocus on the U.S., which is deeply rooted in the American mentality.

Eine Infografik mit dem Titel: China: Germany's Most Important Trading Partner

Development of German trade in goods (imports and exports) with China, in billions of euros

The Pioneer: In fact, the decoupling has already begun. Volkswagen, once the top player in China, has now less than 3% of the market share in electric mobility.

Xi Jinping, President of China © imago

Ackermann: Decoupling would undoubtedly be a significant challenge for the automotive industry. The Chinese have gained enormous market share in electric vehicles. These are long-term effects that will eventually impact the industry.

The Pioneer: We are not just distancing ourselves from China, but also from Russia. Is this the right thing to do?

Ackermann: I don’t think so because dialogue always seems better than exclusion.

The Pioneer: Recent inflation data from the U.S. dampened hopes for rapid interest rate cuts. Yet, the markets continue to bet on them.

Ackermann: There’s still a sense that the interest rate fantasy isn’t over—it’s just delayed.

The Pioneer: Some economists advocate abandoning the European Central Bank’s 2 percent inflation target to stimulate the economy. What’s your view on this?

Ackermann: I’m absolutely against it because as soon as you start aiming for 3 percent, discipline breaks down. In five years, you’ll be aiming for 4 percent. As a former Swiss artilleryman, I say if you have a target and the shots don’t hit it, you can adjust the target to the shots, but that’s not a very wise policy.

The Pioneer: What about the German debt brake? Many economists are urging the finance minister to loosen it.

Ackermann: I firmly believe that we should stick to the debt brake — it’s keeping us disciplined.

Click here to listen to yesterday's episode of the Pioneer Podcast in German.

The Pioneer: And in the U.S.? Isn’t their debt a much bigger problem for the global economy?

Ackermann: The U.S. is in a unique position. They borrow in their own currency, and the dollar remains the world’s reserve currency. So, as long as the currency is accepted and countries like China continue to invest in U.S. Treasuries, the Americans can keep going.

Eine Infografik mit dem Titel: USA: A Growing Mountain of Debt

National debt of the USA since 1990, in billions of US dollars

Conclusion: What you hear is what you get. Josef Ackermann has not lost his mojo nor his navigation system.

  • The result of the German government’s sustainability report is sobering.

  • Juso leader and economist Philipp Türmer talks about tax justice.

  • The film "Story of Hipgnosis" was released last night.

"Strong deterioration": That's the stark conclusion of the German Ministry of Finance's yearly sustainability report on the German economy. According to the report, Germany's debt could soar from 64 percent of gross domestic product (GDP) to an alarming 345 percent by 2070.

Eine Infografik mit dem Titel: Increase in Public Spending

Development of demography-dependent public spending as a share of GDP, in percent

Economists have been crunching numbers for the report outlining two scenarios, which will be presented to the Cabinet next Wednesday. These scenarios project spending in areas such as pensions, health care, unemployment, education and family support over the long term.

The question: Will Germany be able to finance itself in the future?

Worst-case scenario: By 2070, the annual financing gap is projected to be 6.93 percent of GDP - about €285 billion at today’s rates. As a result, the annual government deficit would rise to 21.9 percent of GDP by 2070, or about €900 billion today.

Best case: Even the more favorable scenario will pose significant challenges for future federal governments if current trends continue. In this scenario, the budget deficit would amount to 2.67 percent of GDP by 2070, or about €110 billion. While last year’s deficit was around €80 billion, the best-case scenario would see it rise to around €325 billion.

Finance Minister Christian Lindner and Economics Minister Habeck © The Pioneer

Not a prediction, but a warning: The long-term model calculations are not meant as predictions, the report clarifies, but instead as a signal that the sustainability of public finances is not guaranteed.

Christian Lindner, Olaf Scholz and Robert Habeck © The Pioneer

The German economy is increasingly plagued by investment losses. In 2023, foreign companies invested only about €22 billion in Germany – the lowest amount in a decade.

Diagnosis: Economists at the IW Institute point to the reasons for this loss of attractiveness in their study: “Policies make it anything but attractive for companies to invest in Germany (...) If the political framework remains as it is, deindustrialization could accelerate significantly,” says IW economist Christian Rusche.

IW economist Christian Rusche © Institut der deutschen Wirtschaft

Dangerous interplay: Besides low investment, the study notes record outflows. A total of €116 billion, most of which went to expand German companies’ operations abroad. This corresponds to a net outflow of around €94 billion, the third largest since 1971. Outflows were higher only in the two previous years.

Eine Infografik mit dem Titel: Germany: Capital Outflow

Inflows of direct investment and net outflows, in billions of euros

Conclusion: The record outflows of the past three years are not a temporary blip but evidence of the decline of the German economy.

Philipp Türmer © Anne Hufnagl

Meet Philipp Türmer, an economist by training and leader of the SPD’s (Social Democratic Party) youth organization since November 2023. More left-leaning and outspoken than Scholz, Türmer is passionate about democratic socialism and emphasized the distinction between socialization and nationalization in our conversation.

In the Pioneer Podcast, we delved into his concept of tax justice. His focus? Not so much hitting the wallets of XXL earners, but instead targeting the fortunes of billionaires:

We young socialists believe in resolving the contradiction between capital and labor. Those who work should truly reap the wealth they generate, not those who, for example, have merely inherited their businesses.

In tackling the problems of the public pension system, Türmer refuses to resort to insurrection or rely solely on the capital market:

If we want to support the public pension system, the trend of generating more of society's income with capital rather than labor must be reversed. This would strengthen and ensure the future sustainability of public pensions.

His expectations of Chancellor Olaf Scholz, whom Türmer had urged to show more leadership at the last party congress, remain unfulfilled:

I believe many people in this country share my dissatisfaction with the current government coalition’s performance. We must break out of this downward spiral.

Click here to listen to today's episode of the Pioneer Podcast in German.

Olaf Scholz © imago

Request rejected: The Union’s (CDU/CSU) proposal for the immediate delivery of German Taurus cruise missiles was denied in the Bundestag yesterday. While the debate revealed divisions among the coalition parties, they ultimately presented a united front during the vote. A total of 188 members of parliament, ten more than last time, voted in favor of the Taurus delivery.

Strong criticism from Merz: In an interview with RTL, CDU leader Friedrich Merz described Chancellor Scholz as “highly nervous” and “thin-skinned”. Merz also pointed out Scholz’s contradictory statements:

He is playing on the German people’s fears of war while positioning himself as the one who has them under control.

Rolf Habben Jansen, CEO Hapag-Lloyd © imago

Navigating Stormy Seas: After years of record-breaking success, Hapag-Lloyd is now facing turbulent times. Germany’s largest container transporter had to cope with a revenue decline of more than half in 2023, down to €17.8 billion. The net profit plummeted to just under €3 billion, compared to €18 billion in 2022.

Attacks on shipping routes, particularly in the Red Sea, significantly impact the industry. In the Christmas quarter of 2023, Hapag-Lloyd experienced its first operational loss since 2016.

Additionally, the weak economy is leaving its mark. Analysts anticipate a significant drop in freight rates in 2024 – yet another challenge for Hapag-Lloyd.

In response to the profit slump, Hapag-Lloyd is drastically reducing its dividend from €63 to €9.25 per share. Understandably, shareholders are jumping ship. By the end of the day, there was a decrease of around 15 percent.

Eine Infografik mit dem Titel: Stormy Waters for Hapag-Lloyd

Hapag-Lloyd share price performance since the beginning of 2022, in percent

Armin Papperger, CEO Rheinmetall © dpa

No other Dax company is profiting as much from the new European arms race as Rheinmetall. In 2023, the defense contractor reported sales of €7.2 billion - an increase of 12 percent over the previous year. According to Rheinmetall CEO Armin Papperger, the company aims to sell around €10 billion this year, possibly as much as €15 billion by 2026.

On the way to becoming the world's largest ammunition manufacturer: Rheinmetall produced 70,000 rounds of ammunition a year before the Ukraine conflict. This year, the Düsseldorf-based company plans to increase production to 600,000 to 700,000 rounds and 1.1 million by 2027.

Gifts for shareholders: Rheinmetall shares its successful fiscal year with its shareholders. The Executive Board proposes to the Annual General Meeting to raise the dividend from €4.30 to €5.70 (+33 percent). The stock price rose by 5 percent during the trading day.

Eine Infografik mit dem Titel: Rheinmetall: War Drives the Share Price

Rheinmetall share price performance since 2022, in euros

Aubrey Powell can be seen on the movie poster of "Squaring the Circle - The Story Hipgnosis" with the album cover of Pink Floyd's album "The Dark Side of the Moon" © imago

"One for the money, two for the show." It was the late 1960s when rock ‘n’ roll finally arrived in London. British art students Aubrey "Po" Powell and Storm Thorgerson seized the moment and founded the design studio Hipgnosis in 1968.

Powell and Thorgerson designed album covers for Pink Floyd, Led Zeppelin, Paul McCartney, Peter Gabriel, Genesis and more.

What made them special: Powell and Thorgerson often created their covers without input from the musicians, resulting in timeless, distinctive works. A notable example is Pink Floyd’s Atom Heart Mother.

No title, no name, just a cow. The album cover of Atom Heart Mother, Pink Floyd (1970). © imago

"Squaring the Circle" is the title of the movie released last night that tells the “story of Hipgnosis,” in which Powell recalls his first meeting with the late Thorgerson in 2013:

Everyone was smoking dope, hanging out, listening to music. And I met this guy with long hair.

The documentary "Squaring the Circle" offers a kaleidoscope of anecdotes that provide insight into the inspiration behind Hipgnosis’s iconic, vibrant works—making it well worth a trip to the movie theater!

Wishing you a wonderful start to your weekend. Stay informed. Stay with me.

Best wishes,

Pioneer Editor, Editor in Chief, The Pioneer
  1. , Pioneer Editor, Editor in Chief, The Pioneer

Editorial Team

Eleanor Cwik, Alexia Ramos, Alexander Wiedmann, Nico Giese & Louisa Thönig

With contributions from: Philipp Heinrich, Luisa Nuhr, Tatiana Laudien & Daniel Bayer

Translation Team

Eleanor Cwik & Alexia Ramos


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