What Eliot Spitzer was to Wall Street, the Stuttgart private law firm Binz & Partners may now be to Finanzplatz Deutschland – the instigator of a legal process that calls investment banks and company executives to account but raises the question of whether this is the best way of doing it or merely the most politically exciting.

The public does not like fat cats so politicians can gain kudos by supporting attempts to punish bankers for excess. When New York state attorney general Eliot Spitzer hounded Wall Street banks over research slanted in favour of investment banking clients, politicians backed him: investors who lost money in the tech crash needed a scapegoat and Wall Street analysts fitted the bill perfectly.

Similarly, Germany’s political establishment is backing Binz & Partners’ efforts to nail Deutsche Bank’s CEO Josef Ackermann and others over bonuses paid to four Mannesmann executive directors during Vodafone’s takeover. Mr Ackermann is a former director of Mannesmann and sat on the non-executive compensation committee that approved the bonuses.

The law being used in this case is Untreue – breach of fiduciary duty. The trial promises to be good theatre, as was the Spitzer case, but should it have been brought? Unless fraud has been committed (see this month’s cover story, page 18), these are matters for investors rather than prosecutors.

Investors should be grown up enough to know how an investment bank works and where conflicts of interest lie. Some like investment banking research because the analysts have good access to companies that the bank works with in other ways. Investors who do not like this reality should get their research elsewhere. If enough of them do so, the banks will change their structure.

Mannesmann’s former CEO Klaus Esser pointed out: “If you say that shareholders lost out, you are wrong by E77bn.” That is the amount by which the shares increased in value as Mannesmann resisted Vodafone’s takeover offer before giving way. Shareholders are not complaining; why should Binz & Partners?

Deutsche Bank shareholders, in contrast, should make a fuss: their investment is going to lose two days a week of CEO time for the next six months as Mr Ackermann attends court.

In France, things have got even more out of hand: Morgan Stanley has to pay E30m to LVMH for alleged bias in its research on the company following a Paris court ruling. The report was too negative and amounted to fautes lourdes or gross tort, the court found. LMVH chairman Bernard Arnault claimed that the report’s stance was motivated by Morgan’s investment banking work with rival firm Gucci. That assertion is hard to prove but the fallout from the case could be highly damaging.

Go too far down this road and investment banking research really will end up being a waste of paper. Brian Caplen

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter