DEUTSCHE BANK AG 
FRANKFURT (Reuters) - Shareholder advisory firm ISS has said Deutsche Bank (>> Deutsche Bank AG) investors should not exonerate the executive board of Germany's biggest lender for recent fines, setting the scene for a possibly stormy annual shareholder meeting on May 21.
Institutional Shareholder Services, which acts as a consultant to big investors and hedge funds, advised shareholders to vote against exoneration of the board and Co-Chief Executives Juergen Fitschen and Anshu Jain at the meeting, according to a document obtained by Reuters on Friday.
The document indicates the bank's leaders may risk an embarrassing rebuke by its owners less than four weeks after presenting a new strategy entailing substantial changes to its structure.
However it was not clear which if any of Deutsche Bank's major shareholders ISS was advising, or what action they were likely to take as a result of its opinions.
ISS said its objection stemmed in part on the record $2.5 billion (£1.6 billion) fine Deutsche Bank agreed with U.S. and British regulators after a probe over manipulation of benchmark interest rates used to price loans and contracts around the world.
Regulators had criticised the bank's response and cooperation, which added to the size of the penalty and further hurt shareholders, ISS said.
A separate trial in Germany involving Fitschen, who is accused of giving misleading evidence in connection with the 2002 collapse of the Kirch media empire, is an additional burden, it said.
ISS however recommended voting in favour of exonerating Deutsche Bank's supervisory board over the fines because most of its members had joined in recent years and could not be held responsible for legacy issues.
INTERNAL CONTROLS
Deutsche Bank declined to comment directly on the ISS document but repeated its previous statement that it regretted the interest rate matter, had dealt with the employees responsible and improved its internal controls. Regarding the Fitschen trial, the presumption of innocence applies, it repeated.
If a majority of shareholders follow ISS's recommendations, it would amount to a vote of no-confidence in Deutsche Bank's executives, but the board can only be recalled by the supervisory board.
Other shareholder advocates have also expressed discontent with developments at Deutsche Bank.
Small shareholder association DSW has placed a demand for a special review of the bank's legal problems on the agenda of the AGM, a move ISS saw as unnecessary given the regulatory and auditing oversight now directed at legacy issues.
Other shareholders are unhappy with the lender's leadership over the announced strategy plan to boost profit by paring back investment banking, selling its Postbank (>> Deutsche Postbank AG) retail chain via a public share offering and reducing costs.
"Lots of details are still unclear and the bank's track record when it comes to cost cuts is disappointing," said a representative of one of Deutsche Bank's top 10 shareholders, who was not authorised to comment publicly.
While shareholders are unable to vote on the strategy at their May 21 meeting, they can vote on the bank's leadership, the shareholder said, adding: "We haven't yet decided but our confidence has sunk drastically".
(Additional reporting by Alexander Huebner; Writing by Jonathan Gould; Editing by David Holmes)
By Kathrin Jones
