University of New York in Prague School of Business

Bachelor of Business Administration Program

FINAL PROJECT

The Rise and Fall of Deutsche – a Case of a Failed Corporate Strategy

Author: Branislav Löffler ID: 515878 2020 Mentor: Václav Chvalovský Statutory Declaration / Čestné prohlášení

I, Branislav Löffler, declare that the paper entitled ‘The Rise and Fall of

– a Case of a Failed Corporate Strategy’ was written by myself independently, using the information and sources listed in the list of References. I am aware, that my work will be published in accordance with § 47b of Act No. 111/1998. Coll., On Higher Education

Institutions, as amended, and in accordance with the valid publication guidelines for university graduate theses.

Prohlašuji, že jsem tuto práci vypracoval samostatně s použitím uvedené literatury a zdrojů informací. Jsem si vědom, že moje práce bude zveřejněna v souladu s § 47b zákona č.

111/1998 Sb., o vysokých školách ve znění pozdějších předpisů, a v souladu s platnou Směrnicí o zveřejňování vysokoškolských závěrečných prací.

In Prague, 07.12.2019 / V Praze, 07.12.2019

Branislav Löffler

2 Acknowledgements

I would like to thank my Mentor Professor Václav Chvalovský, whose kind words, feedback and understanding of my terrible time management helped to shape this Thesis. I would also like to thank my parents as they granted me with the opportunity to study in a foreign language and supported me throughout my studies. I also appreciate the endless understanding of my manager. Lastly, I would also like to thank my amazing girlfriend, who took care of me while I was working on this Paper.

3 Abstract / Executive Summary

In the modern , no other company can demonstrate the interaction of society, politics and economy as the Deutsche Bank. One of the largest financial institutions in Europe, Deutsche Bank, operates since 1870. Headquartered in , Germany, the bank now operates in 58 countries all over the world. As of 2017, according to S&P Global Market

Intelligence, Deutsche Bank figures among the top 15 world’s biggest by assets. (Martin,

2018) And yet, in recent years, Deutsche Bank seems to have lost its steam, recording multiple years without any profit.

Since the financial crisis in 2008, in which Deutsche Bank played a role as well, the

German multinational bank suffers one defeat after another. Tax evasion, scandals, sanctions, allegations, money-laundering, dramatic decline in its price. The proud institution became a self-serve buffet for a few, who became fantastically rich - and so the work of generations went down the drain. (Fichtner, Goos, & Hesse, 2016)

That leaves us with some open questions: What has shaped the evolution of Deutsche

Bank? How did the German bank become a major Wall Street player? What is behind its recent downfall? What could have been done differently? Who is to blame ? And most importantly:

Is Deutsche Bank too big to fall?

Keywords: Deutsche Bank, Corporate Strategy, Banking, Financial Crisis, ,

Globalization, Performance

4 Table of Contents Introduction...... 6 Project Objective ...... 8 Literature Review ...... 9 1 Evolution of Deutsche Bank ...... 10 1.1 Roots of Deutsche Bank (1870 – 1914)...... 10 1.2 First World War & (1914 – 1918, 1919 – 1932)...... 16 1.3 In the Third Reich (1933 – 1945) ...... 20 1.4 Reconstruction Period (1945 – 1957) ...... 25 1.5 Rediscovering the World (1958 – 1988) ...... 26 1.6 Global Market, Global Player (1989 – 2007) ...... 28 1.7 Financial Crisis Years & Its Consequences (2007 – 2012; 2013 - 2019) ...... 33 1.8 Major Controversies ...... 37 1.8.1 Lawsuits, Lawsuits and More Lawsuits ...... 37 1.8.2 Scandal ...... 39 1.8.3 Espionage Scandal ...... 39 1.8.4 Trump Relations ...... 40 1.8.5 Money Laundering ...... 43 2 Deutsche Bank Today ...... 44 Conclusion ...... 49 References ...... 51

5 Introduction

“Modern Germany was built around iconic firms, and over the past year, quite a few have taken a knock. Siemens is only now starting to recover from a bribery and corruption scandal. Lufthansa’s reputation for safety was damaged after a sick co-pilot with a history of mental troubles steered a jet into a mountainside. Most seriously, the revelation of manipulated diesel emissions of Volkswagen cars rocked the image of Germany’s auto industry, not to mention the damage the resulting legal costs will do to Volkswagen’s bottom line.” (James,

Foreign Policy, 2016)

And then, there is Deutsche Bank. The most prestigious and ambitious German symbol, which was founded in 1870, even before there was a unified German state. A law in , which permitted the establishment of joint-stock banks, gave life to “Deutsche Bank und

Disconto-Gesellschaft”. (James, The Nazi Dictatorship and the Deutsche Bank, 2004) The founders were quite ambitious – this bank was supposed to challenge the domination of Great

Britain in financing of overseas trade. However, Deutsche doesn’t differ from the other German firms; the only difference being the amount of scandals, gaffes & mistakes. The close relationship between the bank and German politics became an explosive liability – during both world wars and in the present as well. (James, Foreign Policy, 2016) The ‘noble’ status, earned throughout the last decades, was diminished and humiliated. Furthermore, the big financial crisis in 2008 revealed such crucial matters of fact, that it immediately led to a beginning of an end. As Fichtner, Goos & Hesse write in their series of articles in Spiegel (2016), “Greed, provincialism, cowardice, unfocused aggresion, mania, immaturity, mendacity, incompetence, weakness, pride, blundering, decandence, arrogance, a need for admiration, naiveté: If you are looking for words that explain the fall of Deutsche Bank, you can choose freely and justifiably from among the above list.“

6 Deutsche Bank has always very much been in the public focus. (Horwood, EuroMoney,

2011) As the pride of Germany, the current status and troubles of Deutsche Bank represent also the current conception of German economy. The previous CEOs of Deutsche Bank, Jurgen

Fitschen and , had explained that they will do what they can to clean up the past.

However, as Harold James in his article in Foreign Policy highlights, “getting rid of the past has never been an easy task, especially in Germany.” (James, Foreign Policy, 2016)

Figure 1:Evolution of Deutsche Bank's stock price – from 1996 to 2019 (Yahoo, 2019)

7 Project Objective

The objective of this Thesis is to find out & identify the reasons of Deutsche Bank’s rise and (recent) fall. The upsurge, boom, descent and fall will be closely analysed, mostly from the historical and financial point of view. The main goal of this thesis is to investigate the events

& decisions, which led to Deutsche Bank’s current weakened position. Several questions will be raised, and the author will try to answer them.

What exactly were the reasons behind Deutsche Bank’s rise? How did the Nazi regime influence the bank? What exactly were the reasons behind Deutsche Bank’s recent downfall?

What has Deutsche Bank failed to do? What could have been done differently? What is the current situation of Deutsche Bank? Is Deutsche Bank the next “Lehman Brothers”? And most importantly: will Deutsche Bank ever shine again?

8 Literature Review

The primary historical research tool will be the book The Deutsche Bank (Gall, Feldman,

James, Holtfrerich, & Büschgen, 1995) published by Lothar Gall, a German professor at

Goethe University Frankfurt (from 1975 to 2005), one of the most respected German historians.

During Deutsche Bank’s 125th anniversary, Lothar Gall (and a few more scholars, including

Harold James) have been invited to its archives to create a ‘report of development’ of the bank.

Thanks to this occasion, Lothar Gall & the co-authors managed to ‘compress’ the whole history

(up to 1995) of Deutsche Bank into this book.

Moreover, the work of Harold James, an economic historian, who is currently a professor of history at Princeton University, will be closely examined. Mr. James, whose expertise lies in German and European economic history, wrote several books on this topic

(Nazi Dictatorship and the Deutsche Bank; The Deutsche Bank and the Nazi Economic War against the Jews: The Expropriation of Jewish-Owned Property; Role of Banks in the Interwar

Economy) and is a frequent commentator whenever Deutsche Bank ‘pops up’ in the news.

Lastly, information will be also collected from numerous well-known respected

(economic) journals, such as Der Spiegel, The , The Economist, Business or

The New York Times. The author of this Thesis also searched in Law enforcement authority websites (such as U.S. Department of Justice) for several secondary information. The official

Chronicles of Deutsche Bank were also used as a source of information for the purpose of this

Thesis.

9 1 Evolution of Deutsche Bank

On the occasion of the 125th anniversary of Deutsche Bank, its CEO, wrote a memento. “A few institutions in Germany have survived so many years and become intertwined with the nation’s history. Deutsche Bank has travelled the road traversed by the

German people, with all its peaks and troughs, since the founding of the Bismarckian empire in

1870. The rise of the bank and the development of German industrial society are indissolubly linked. The parameters within which Deutsch Bank operates have always been politically determined. Those who rise high can also fall hard. “ (Gall, Feldman, James, Holtfrerich, &

Büschgen, 1995)

Furthermore, the famous German poet Johann Wolfgang von Goethe once said: “A chronicle can only be written by someone for whom the present is important.” (Goethe, 1826)

In the financial sector, every move is carefully observed by public, banks’ mistakes attract attention. Over the recent years, Deutsche Bank has been targeted by many critics. Therefore, it is absolutely necessary to understand how such a big institution shaped in order to judge its actions.

1.1 Roots of Deutsche Bank (1870 – 1914)

Deutsche Bank was founded in 1870, even before the unification of all the German principalities. Yet the name seemed to be chosen to indicate its ambitious program; both political & economical – for the future. And indeed, for most of its history, Deutsche Bank was the foremost symbolic, representative, and most prominent German bank. (James, Foreign

Policy, 2016) A group of businessmen, based in , decided to form up an export bank; following the continuous political and economic advancements – Industrial Revolution, expansion of German Customs Union, liberalization of law (easier setting up of joint stock companies) & strong position of Prussia in the west Europe.

10 The architects of Deutsche Bank were private banker Adelbert Delbrück and monetary specialist Ludwig Bamberger, who laid its foundations on the growing economic strength & social influence of the German middle class, especially after Bismarck’s coalition with the

National Liberal party, which encouraged attempts to modernize in all economic areas. (Gall,

Feldman, James, Holtfrerich, & Büschgen, 1995) Ludwig Bamberger was also a personal adviser of Chancellor Bismarck. In the German parliament, Reichstag, Bamberger was an authority on matters such as finance or economics. It was him, who strongly supported gold and stood against bimetallism, giving Deutsche Bank an advantage on the domestic market.

In fact, Deutsche Bank was only the second joint stock bank in all of Prussia, given the fact joint stock companies needed to be licensed and licenses were granted only rarely. (Gall,

Feldman, James, Holtfrerich, & Büschgen, 1995) In the same year (1870), Prussian government abolished the requirement to license joint-stock banks. Deutsche Bank’s statue “placed great emphasis on foreign business.” (Deutsche Bank, 2019) “The object of the company is to transact banking business of all kinds, in particular to promote and facilitate trade relations between Germany, other European countries and overseas markets.” (Deutsche Bank, 2019)

Adelbert Delbrück thought of the idea of creating a bank, predominantly for foreign trade, in

1869, “that should make us independent of Britain and the credit granting facilities that a

German merchandise might seek and find only in London”. (Gall, Feldman, James, Holtfrerich,

& Büschgen, 1995) He found an partner in Bamberger, who was already involved in American and Eastern credit transactions. As he wrote in his memoirs: “These experiences were the reason why, when Adelbert Delbrück, head of the Delbrück, Leo & Co. bank, talked to me in the late

1860s, on the occasion of my first stay of any length in Berlin, about the business of starting up a Deutsche Bank and asked me to participate in its formation and organization. I eagerly agreed in the light of the expansion to be won for German banking transatlantic territories, a realm in

11 which I could claim to have some knowledge.” (Gall, Feldman, James, Holtfrerich, &

Büschgen, 1995) And just like this, on the 9th April of 1870, a bank rose in Französische Strasse

21, Berlin. In 1871, Deutsche Bank opened its first domestic branches, mainly because of Berlin being geographically inconvenient for international business. Therefore, the directors chose the two major German port cities and , through which majority of German export passed.

Deutsche bank’s first directors were Wilhelm Platenius (who retired very early), Georg

Siemens & Hermann Wallich. (Historical Association of Deutsche Bank, 2010) And it was

Siemens and Wallich, who shaped the early development of Deutsche Bank’s existence.

Siemens introduced the ‘Depositenkassen’ (business of deposits), with a specific purpose of taking deposits, forming the basis of the bank’s liabilities-side business. (Deutsche Bank, 2019)

Wallich, on the other hand, was responsible for the bank’s overseas operation. First foreign branches are dated to 1872 – in Shanghai and Yokohama. These 2 openings were connected with the introduction of in Germany – Deutsche Bank wanted to get rid of its silver reserves. However, they did not last long, recording profit until 1874, given the fact that banks in East Asia operated in silver, they suffered from its depreciation. In 1875, both eastern branches were liquidated at a loss.

Wallich & Siemens developed an inimitable business model – lending money to businesses; and converting its short-term lending into long-term securities or voting rights. As

Harald James suggests, Germany was not rich at the time, it was developing its industry and was lacking functioning capital markets. And Deutsche Bank started to exploit rather than trying to improve the capital market situation. Once the bank obtained proxy voting rights, its bankers started to guide the businesses to which it had lent & sit on the boards of those companies – which indicates the beginnings of an investment bank. (James, Foreign Policy,

2016)

12 In 1871, Deutsche Bank established its first branch in London under the name of

Deutsche Bank (Berlin) London Agency, which played a key part in expansion of Deutsche

Bank’s international business. The purpose of the London branch was to accept bills of exchange & to finance imports and exports from all over the globe; mainly for German accounts. Over the next few years, Deutsche Bank focused on getting stakes in other European banks, such as Belgian La Plata Bank or a Paris bank Weissweiller, Goldschmidt & Co. Even though not all their investments were successful, Deutsche Bank prospered, building on its deposits business and promotion of industrial export. Deutsche was one of a few banks who were able to post rising turnovers during the economic crisis between 1874 and 1880. Deutsche

Bank was also able to acquire multiple banks in Germany at relatively small expense, mainly due to the fall of stock exchange prices during the crisis. It led to a huge increase in customer contacts; the number of opened accounts in Germany almost doubled. ‘But the really important thing,’ as Wallich stated, ‘was that by dint of this operation, Deutsche Bank became a major bank overnight.’ (Gall, Feldman, James, Holtfrerich, & Büschgen, 1995)

The beginnings of Deutsche Bank are marked with rapid expansion as the bank’s leadership was able to make quality judgments, which were combined with its favorable position on the German market. Their strategy has not changed – the primary focus in the 1880s and 1890s was still foreign business & investments. In fact, domestic branches were quite rare at that time, as Deutsche Bank opened its 3rd branch in Frankfurt only in 1886. (Historical

Association of Deutsche Bank, 2010) Rather than establishing its own branches, Deutsche focused on purchasing holdings in smaller, regional banks all over the Germany. At the same time, Deutsche Bank sets up another entity in Berlin – Deutsche Uebersee-Bank, with purpose to finance ‘oversea’ businesses in America. Its operations took place mostly in Brazil,

Argentina and Chile. During that time, most overseas transactions were done by British credit institutions. The aim of Deutsche Bank was to offer German merchants their own bank, which

13 could do all the needed services for them, including transactions of foreign payments or providing importers with documentary credit. Deutsche had a big a dream: establishment of its national currency (German Gold ) as an internationally recognized instrument of exchange. But, as we know today, it never happened.

From the early 1880s, Deutsche Bank unfolded its involvement in various branches of industry. With the rise of chemical industry, Deutsche Bank was smart enough to invest in companies such as Friedrich Bayer & Co. (today known as Bayer AG), or Badische Anilin &

Soda-Fabrik (today BASF SE). Following in 1887, Deutsche launches its investment activities in German electricity industry by founding the Allgemeine Elektricitäts-Gesellschaft (AEG); helping AEG to become a successful company. Mannesmann - nowadays a huge conglomerate taken over by Vodafone; back in 1890 a producer of steel pipes, could not exist either without the help of Deutsche Bank.

But it was the rail industry which really made Deutsche Bank’s brand name well-known all over the world. In 1883, Deutsche Bank helped to finance The Northern Pacific Railroad, which connected Lake Superior with the Bay of Vancouver. (Historical Association of

Deutsche Bank, 2010) In 1888, the Turkish government grants Deutsche bank the privilege to build and operate the Anatolian Railway, connecting Istanbul and Ankara, which later (in 1903) extends all the way to Baghdad, Basra and Persian Gulf, again with the help of Deutsche Bank.

Another railway operation begins in China, 1889. Deutsche Bank, together with other joint- stock banks, establishes the Deutsch-Asiatische Bank in Shanghai. (Gall, Feldman, James,

Holtfrerich, & Büschgen, 1995) While its original purpose was to finance business with China, nevertheless, soon it plays a role in the financing of China’s railway construction. Before the

WWI began, Deutsch-Asiatische Bank has already opened 6 branches. Back in Europe, in 1890,

Deutsche Bank completed another railway deal by acquiring the concession to build and operate the Saloniki-Monastir Railway. At the same time, in Italy, another syndicate under the lead of

14 Deutsche Bank is formed. It underwrites bonds for Italian government and handles vast majority of the business for Italian government, including railway operations. In 1909,

Deutsche Bank helped to found Company for the Construction of Railways in Turkey

(Gesellschaft für den Bau von Eisenbahnen in der Türkei), which was ordered to build another part of Baghdad Railway, all the way up to upper Mesopotamia. Deutsche Bank co-operated with Turkish government on various different projects (another Railway extension in 1911), as well as providing Turkey with . However, in 1913, due to fighting in the Balkans (First &

Second Balkan War), Deutsche Bank decides to sell their positions in Oriental Railways, getting completely rid of its investments in the Balkans.

However, not every early move Deutsche Bank made was predetermined to be a good one. In 1894, Siemens & Halke (today known as Siemens, world’s biggest conglomerate), with the support of Deutsche Bank, turns into a joint-stock company. However, due to the competition between Siemens and AEG, Deutsche Bank had to make a decision which company it will continue to support. Deutsche Bank decided to continue cooperating with

Siemens; which led to Georg Siemens (Deutsche Bank’s director) leaving AEG Supervisory

Board. (Gall, Feldman, James, Holtfrerich, & Büschgen, 1995) Later in 1899, after Georg

Siemens was knighted, he leaves Deutsche Bank’s Management Board and joins the

Supervisory Board. He died in 1901.

At the very beginning, in 1870, the share capital of Deutsche Bank was 5 million talers

(15 million marks). In 1914, its share capital was 250 million marks. Despite its foreign focus,

Deutsche Bank had many domestic branches in strategic cities all over Germany. Spring 1914,

Frankfurter Zeitung: ‘Deutsche Bank is the biggest bank in the world’. This quote not only marked the worldwide dominance of Deutsche Bank, it also marked the end of its era, as the

WWI has shut down the efforts of globalization, thus forcing Deutsche Bank to resign from their foreign activities and focus on the domestic ones. (Deutsche Bank, 2019)

15 1.2 First World War & Weimar Republic (1914 – 1918, 1919 – 1932)

First World War drastically changes the whole world; with Deutsche Bank being no exception. The future of the bank was heavily dependent on the long peace, which lasted from the 1871. As Gerald Feldman, an American historian, noted, ‘From the perspective of the banking system, the most revolutionary development brought on by the war was the massive involvement of the banks in the finances of the state. By the end of the war, the private business of the bank in commercial bills and stock market transactions had virtually disappeared, while the enormously increased liquid engagements quite naturally consist in the largest measure of

Reich Treasury bills.’ War basically forced banks to (unwillingly) focus mainly on lending money to the state; yet not many banks were able to predict such a development. Throughout the war, the major Berlin banks, including Deutsche Bank, were covering around 50-60% of

German war debt; with Deutsche Bank having more than 6 billion marks in war loans. (Gall,

Feldman, James, Holtfrerich, & Büschgen, 1995) The only successful business scenario – repayment of the war cost, was based solely on the condition that Germany wins the war. The distasteful engagement to the state persisted even after war; which slowly led not only to inflation, bank crisis or the Great Depression, but in many cases, this relationship had a character of a ‘kiss of death’. Many smaller (regional) banks were not able to survive during the WWI aftermath, which resulted into mergers or takeovers.

Right after the start of WWI, inflation occurred as the result of suspension of the gold standard when the war started. The Weimar Republic had to pay for the war, as the German

Emperor Wilhelm II decided to fund WWI by borrowing money. The loans should have been covered by Germany winning the war. This, however, was not the outcome of the war. On top of the loss, it also had to pay reparations to Allied Powers based on the .

The Weimar republic decided to pay the reparations by massive printing of money. As a result, its currency - mark devalued heavily – from 4.2 to 330 marks per dollar in 1921. (Officer, 2019)

16 Deutsche Bank firstly responded with doubling its share capital in 1922 to 700 million marks, but a year after, the amount was again doubled to 1 500 million marks. But hyperinflation still rose, as more & more money was issued. For comparison: before the WWI started, 1 egg was valued at 0,08 marks. In late 1923, the cost of 1 egg was 80 000 000 000 marks! In late 1923,

1 single dollar was equal to more than 4.2 trillion marks. (Officer, 2019) In order to stabilize the currency, Weimar (German) government introduces the ‘Rentenmark’, which was connected with the last increase of the dollar exchange rate. On the basis of this dollar exchange rate, the exchanged Rentenmark notes for Reichsbank notes at the rate of 1

Rentenmark equaling 1 trillion marks. (Historical Association of Deutsche Bank, 2010) In

1924, reorganization of the monetary and currency system took place. New currency -

Reichsmark (RM) was introduced. Moreover, Weimar government decided to establish the

Golddiskontbank (German Gold Discount Bank), which should promote the German exports by financing raw material imports. Deutsche Bank converted its share capital to 150 RM. Many businesses were badly affected by hyperinflation, yet Deutsche Bank was not one of them, as the inflation ‘favored’ companies with access to foreign trade exchange. Moreover, Deutsche

Bank has taken several effective, preventive measures very early in 1919 in order to ensure no further ‘waste of its resources’. Deutsche Bank tried to restrict & guarantee the repayment of its credits (loans). Its branches were not permitted to grant credits to companies with unpaid war contracts or heavy taxation. Major loans (starting from 100 000 marks) were almost impossible to obtain. Customers were able to borrow funds only for existing orders; they were not able to fund their inventories with Deutsche’s credit. The interest rates and commissions steadily grew. As much as these tools were effective, they destroyed many small businesses, which were dependent on credits.

After the end of WWI, Deutsche Bank was left with no other option than liquidate most of its foreign assets. The defeat of Germany & its allies completely cut Deutsche Bank from its

17 branches in some regions, namely Balkans and the Ottoman Empire. Their railway empire – the Anatolian Railways & the Baghdad Railway are confiscated. Steaua Romana, Romanian oil company, goes to a French consortium, with Deutsche Bank losing all its positions. In 1920,

Alfred Blinzig joins the Management Board of Deutsche Bank. (Historical Association of

Deutsche Bank, 2010) It was him, who fought for the return of Deutsche’s confiscated property in the U.S. Yet it was a situation, where U.S. continued to withhold German property, with

Deutsche Bank stubbornly opposing. A settlement was reached in 1928; 80% of German holdings was given back to its owners with the remainder to be paid out later. (Gall, Feldman,

James, Holtfrerich, & Büschgen, 1995) Blinzig also brought also U.S. imports to Weimar

Republic, as he has proven to be an excellent negotiator, for his stubborn, but dignified & honest behavior in protecting Deutsche’s assets.

Since foreign operations were almost unavailable for Deutsche Bank, the only place to grow was Germany. In 1914, Deutsche Bank decided to merge with the Bergisch Märkische

Bank, which operated in cities such as Cologne, Düsseldorf or Aachen, in order to take over their branches. Suddenly, Deutsche Bank was operating with over than 40 branches & sub- branches. Additionally, in 1917, Deutsche Bank incorporates two more regional banks, extending the total of its branches & sub-branches to 102. The huge domestic growth resulted not only into quadruple number of employees (37 000 in 1923) compared to the pre-war period

(9 000 in 1913), but it also led to Deutsche’s staff first strike in 1919. Moreover, later in 1924,

Deutsche Bank took over Württembergische Vereinsbank, another regional bank in

Württemberg. Later on, Deutsche acquired several more regional banks, maintaining over 175

Depositenkassen & 280 branch offices in mid 1929, while almost doubling its share capital to

285 RM. (Historical Association of Deutsche Bank, 2010)

The start of world’s economic crisis is dated to October 29, 1929 – Black Friday on the

New York Stock Exchange. The biggest merger in German bank history happened in the same

18 week, when Deutsche Bank decided to merge with its biggest rival, Disconto-Gesellschaft; allowing Disconto to avoid a possible 1929 crash. (Gall, Feldman, James, Holtfrerich, &

Büschgen, 1995) Both banks wanted to stop the slow, but constant increase of their operational cost, especially labor costs. Moreover, at that time, multiple mergers across all industries were happening, such as industry, construction industry or oil industry. This merger also integrates the regional banks of Disconto into Deutsche Bank network. Due to the negative effects of the economic crisis, a shrinkage of Deutsche’s share capital to 144 RM takes place in

1931. In July 1931, the whole banking business was suspended for 3 days. As a result of the banking crisis, a significant chunk of the biggest German banks is taken over by the state or the state owned Golddiskontbank. In case of other major bank, such as Dresdner Bank or

Commerzbank, 90% of their capital is taken over by state. However, “only” 50 million RM of

Deutsche Bank und Diskonto-Gesellschaft share capital (out of 144 million RM) is taken over by the Golddiskontbank – Deutsche was able to avoid full state control and remains private.

(Deutsche Bank, 2019) Yet in the following year, 1933, another reduction in share capital occurred; this time to 130 million RM. Until 1935, its shareholders received no dividend.

Apart from takeovers & mergers with other banks, Deutsche Bank was active in other industries as well. Deutsche helped to create the Universum-Film Aktiengesellschaft (UFA) in

Berlin, which is a film/television production company. In 1924, Deutsche Bank played a big role in the merger of Daimler-Motoren-Gesellschaft and Benz & Cie; where both companies signed their Agreement of Mutual Interest, yet they continued to assemble their own automobiles. It was not until 1926, Daimler-Benz AG originated, agreed to combine their production under one shared name – Mercedes-Benz. Moreover, there were rumors of another merger with BMW, which never took place. (Gall, Feldman, James, Holtfrerich, & Büschgen,

1995) In the same year, Deutsche Lufthansa was founded (dissolved by Allies after WWII). Its first major foreign business occurs in 1926, when Deutsche Bank’s syndicate provides a 300

19 million RM to Soviet Union. Until the Second World War started, Deutsche Bank granted

Soviet Union 12 loans.

1.3 In the Third Reich (1933 – 1945)

January 1933. The President of the Weimar Republic, Paul von Hindenburg, Adolf

Hitler was appointed Chancellor of Germany. Together with his party – the National Socialist

Party (NSDAP), Hitler created a monopoly of power – a complete control of political, cultural, social and economic activities; where his word became the highest law. When von Hindenburg died in 1934, Hitler named himself the sole ‘Führer’, backed by the results of recent referendum.

The new, official name of Germany was ‘Deutsches Reich’, also known as the Third Reich, with racism (especially antisemitism) being its ideology. NSDAP presented the recent Great

Depression & its consequences on Germany as a failure of the private market economy, calling for a stricter state governance & interventions. Restriction on international capital movement took place. It is essential to understand that in the early 1930s, life in Germany was not easy. 7 million people unemployed, agriculture in a very bad shape with insolvent farmers, inability to get a credit with a reasonable interest rate or banks being dependent on state subsidies. (Gall,

Feldman, James, Holtfrerich, & Büschgen, 1995) Populism is a very dangerous tool, especially in tough times. People believed; irrespective of their political beliefs, given that NSDAP’s policies were deliberately vague in order to appeal to masses. Hitler called to abolish the “unfair punishment” of the Treaty of Versailles, he promised increased employment rate and higher pensions. He appealed to German supremacy as a race and promised to re-militarize Germany.

NSDAP used very simple slogans and suppressed any opposition. NSDAP used deficit spending to create new jobs all over the Germany. Millions of jobs were created; the unemployment went from several million to 0. (Gayle, 2018) However, as Professor James claims, “In the story of Germany’s way out of depression and into the economics of control, it

20 is difficult to distinguish clearly quite what followed more or less inevitably from the financial and economic catastrophes of the depression, and what originated from the political vision of the new masters of Germany. The capital markets, for instance, became smaller and less relevant to economic activity. Bank loans recovered much more slowly than did the rest of the economy from the world depression. But both these phenomena were characteristic not only of

Germany and dictatorship, but of the development of the whole European economy. Some economists as a result formulated a law of long-term decline in the demand for loans. The capital markets seemed to have been destroyed by the experience of depression and by the organizational measures, such as increased cartelization in financial markets, that accompanied the market failure of the 1920s and 1930s. It required no National Socialist (NSDAP) government opposed to finance capitalism to marginalize the German capital market. In this sense, a large part of the macroeconomics of Germany’s 1930s experience would have happened anyway, whatever the form of government.” (Gall, Feldman, James, Holtfrerich, &

Büschgen, 1995) NSDAP continued in efforts to gain control over German banks. It criticized the centralization of major banks in Berlin & their interest rates. The Reich’s Economic

Ministry, Gottfried Feder, echoed that ‘As a result of the rise of Jewish, purely trading spirit in banking, the great banks had failed with the result that billions of marks needed to be paid by the state for their rescue. The banks need to be directed by the state… And one cannot accuse our government of a lack of initiative. Today the greatest initiative belongs to Adolf Hitler.’

(Gall, Feldman, James, Holtfrerich, & Büschgen, 1995) In the 1934, the first German banking act, ‘Reichsgesetz über das Kreditwesen’ (Reich Credit Law) was created, introducing several regulations for banks, such as recognition of cartels, interest rates limitations and supervisory.

The anti-bank ideology of the Nazi regime worked; banks were hated by the population, even though the number of credits issued rose. One could imply, that Deutsche Bank suffered under the Third Reich, but as the history has shown us, Deutsche Bank was actually an accomplice of

21 many contemptible crimes – a tool in the hands of the Nazi regime, as the bank has already officially confirmed. The darkest chapter of Deutsche Bank has begun.

Under the new government, Deutsche Bank und Disconto-Gesellschaft hoped to continue with its business. In 1933, it sold the former Disconto building to the Reich in exchange for 14 million RM worth of the bank’s shares owned by the state (Golddiskontbank). The rest of its shares were ‘reprivatized’ & transferred back to Deutsche in 1936. In the following year, the

Extraordinary General Meeting decides to revert the name back to Deutsche Bank. It is difficult to question the connection between NSDAP party membership & successful banking career. In all forms of government, party membership statistics are used as measures how politics affected business. From what the historians have found out, at least 3 managing directors were appointed by NSDAP – von Halt, Frowein und Hunke. In 1944, there were 84 branch directors, 44 of them were party members. However, being a high official of Deutsche Bank was not a guarantee of safety. In 1943, Deutsche’s most senior manager, Hermann Köhler, told his colleagues during a train journey that ‘Fascism (in Italy) had disappeared without a murmur, the same would soon happen to German National Socialism.’ Another passenger immediately reported him to the authorities. He was executed in November, despite von Halt’s attempts to save him. (Gall, Feldman, James, Holtfrerich, & Büschgen, 1995)

In early 1934, 3 Jewish members of Deutsche Bank’s Management Board - Oscar

Wassermann, Theodor Frank & were forced to resign and were replaced.

Aryanization became a real matter. Solmssen then moved to the Supervisory Board, but he was

‘tolerated’ only until 1938. Before the war broke out, Deutsche Bank already helped to confiscate Jewish-owned business from more than 363 Jewish owners. The total ousting of the

Jewish people from their business life reached its peak in 1938, when Jews were forbidden to indulge in any kind of economic activity. All Jewish assets in banks, with Deutsche being no exception, were frozen and slowly transferred to the Third Reich. Deutsche Bank was following

22 Hitler’s steps. Deutsche Bank acquires 25% of the share capital of the Österreichische

Creditanstalt-Wiener Bankverein. (Historical Association of Deutsche Bank, 2010) In 1938,

Deutsche Bank was able to make acquisitions in the Sudeten (connected to Munich Agreement), incorporating the German branches of Böhmische Union-Bank. One year later – majority of its share capital was owned Deutsche Bank, which became responsible for branches in the

Protectorate, Slovakia, Yugoslavia, Serbia and Croatia, Greece, Hungary, Bulgaria and

Romania, which meant that Deutsche Bank ‘aggressively expanded’ into soon-to-be German territories even before the WWII started. 1939, the beginning of the Second World War, was as well a successful year for the major German bank in terms of branches - Third Reich’s

Blitzkrieg strategy was threateningly successful in the early years of WWII. Deutsche Bank opens branches in annexed territories, such as Brüx (Most), Cracow, Oderberg, Teschen,

Memel, Heydekrug, Lódz, Poznań, Bielitz & Wolfsburg. (Gall, Feldman, James, Holtfrerich,

& Büschgen, 1995) In 1940, it opens many more branch offices in the occupied countries of southern and western Europe. In the same year, Deutsche Bank was able to increase its share capital to 160 million RM. Deutsche Bank purchased significant holdings in Romanian Banca

Comerciala Romana, as well as in Croatia - Banksverein für Kroatien. (Historical Association of Deutsche Bank, 2010) The growing trend was discontinued in 1942, when 21 branch offices and 24 Depositenkassen are closed due to the war impacts. In 1943, 90 more branches were closed; mainly in Germany. More and more men were called up for military service – in early

1943, almost 10 000 employees were fighting for the Third Reich. Air raids became much more frequent, as German resistance & defense slowly decayed. The main building of Deutsche Bank in Berlin was almost destroyed by an air raid. (Historical Association of Deutsche Bank, 2010)

In 1945, Berlin is besieged. Germany was militarily as well as morally bankrupt.

Deutsche Bank’s headquarters in Berlin is cut off from all its other branches; as a result,

Hamburg is chosen as the ‘emergency headquarters’. Later in 1945, Berlin is defeated.

23 Marching Soviet soldiers shot a member of Deutsche Bank’s Management Board, Karl Ernst

Sippell. (Historical Association of Deutsche Bank, 2010) All banks in Berlin are closed and any financial business is forbidden. The Soviets, however, founded the Berliner Stadkontor, which became to be the only bank operating in the city. Management Board of Deutsche Bank is suspended by the occupying powers.

After Adolf Hitler came to power, Deutsche Bank’s reputation starts to crumble. Once a majestic institution – a flagship of the whole German business, has become just an instrument of destruction, a symbol of greed and immorality. As German troops were marching through

Europe, Deutsche Bank was always there, taking over detained banks & turning them into their own branches. As written in its own Chronicle – ‘Deutsche Bank acknowledges its ethical and moral responsibility. That is why it was not only involved in the foundation set up jointly by

German business and the federal government – “Remembrance, Responsibility and the Future”; it is also making every effort to have its own past fully and critically reappraised.’ (Deutsche

Bank, 2019)

At the very end of the millennium, Deutsche Bank faced several lawsuits from the

Holocaust survivors. In 1998, Deutsche Bank AG acknowledged its participation in dealings with Nazi gold, stolen from the Jews. (Cowell, 1998) In between of 1942 and 1944, Deutsche

Bank traded ~ 4.4 tons of gold channeled through the Reichsbank in the neutral Turkey. It is to be believed, that. at least 744 kg of this gold came from the victims of Holocaust, with all sorts of origin: dental gold from teeth, wedding rings, personal jewelry, etc. (James, The Nazi

Dictatorship and the Deutsche Bank, 2004) It has not been proven that Deutsche Bank was aware of these findings – “There is no unequivocal record that Deutsche Bank’s directors had knowledge of the origin of the victims’ gold that was purchases from the Reichsbank.” (Cowell,

1998) Moreover, historical research has also found that Deutsche Bank is directly linked with financing & constructing death camps. In 1999, Deutsche Bank contributed together with

24 several other major Germany companies to a 5,2-billion-dollar compensation to Holocaust survivors. (California State Treasurer's Office, 1999)

1.4 Reconstruction Period (1945 – 1957)

The afterwar period was very unfavorable for Deutsche Bank. With Germany being torn apart into 4 occupation zones after the Allies tried not to make the same mistake again as in

WWI, a fragmentation of the banking sector was expected, along with partial de- industrialization. Given each occupation zone was under the control of another state, the banking rules differed; in the Soviet zone, all banks were nationalized, while in all other zones

(French, British, American) banks were allowed to continue their business on a regional level.

In 1947, the 3 western zones divided Deutsche Bank into 10 small, regional banks. It was now forbidden to operate business under the name ‘Deutsche Bank’; its headquarters in Hamburg is closed in 1948. (Historical Association of Deutsche Bank, 2010) In the Soviet zone, Berliner

Disconto Bank is set up in the late 1949.

In the American zone, Deutsche Bank is now divided into 4 regional banks in ,

Hesse, Württemberg-Baden and Bremen under various names: Bayerische Creditbank,

Hessische Bank, Südwestbank & Disconto Bank.

In the French zone, 3 banks are created in Rhineland (Rheinische Kreditbank), Baden

(Oberrheinische Bank) and Württemberg-Hohenzollern (Württembergische Vereinsbank).

Later in 1948, 3 regional banks also arise in the British zone: Rheinisch-Westfälische

Bank in North Rhine-Westphalia, Norddeutsche Bank in Hamburg and Nordwestbank in Lower

Saxony.

In 1950, Deutsche Bank, Dresdner Bank & representatives (Hermann J.

Abs from DB) come up with a proposal regarding the future of German join-stock banks. The

Allies accept the proposal, Deutsche Bank is now allowed to form 3 bigger banks, in what is

25 called a ‘three-district solution’, 1 regional bank in each district, which are Norddeutsche Bank in Hamburg, Rheinisch-Westfälische Bank in Düsseldorf and Süddeutsche Bank in Munich.

(Gall, Feldman, James, Holtfrerich, & Büschgen, 1995) At first, these 3 banks operate independently, entering into a contractual relationship in 1955. The shareholders of the previous, smaller banks receive shares of the new institutions in the new German currency –

Deutsche Mark (DM). In 1953, Mr. Abs is leading the conversations with the Allies about

German debts The Truman Administration accepts the fact, that without German economic recovery, Europe cannot move forward without being dependent. (Jennings) As a result,

London Debt Agreement is signed, which restored the creditworthiness of the Federal Republic of Germany. This law gave German banks a hope to be once again fully functional. In 1956 – for the first time since 1944, the 3 regional banks publish a joint Annual Report under the name of ‘Deutsche Bank Group’. Rheinisch-Westfälische Bank changes its name to Deutsche Bank

AG West. In December, Deutsche Bank, Commerzbank & Dresdner Bank are allowed to be formed again. In 1957, Deutsche Bank AG is formed; with headquarters in Frankfurt, Hamburg and Düsseldorf. Banks are also allowed to resume their international business.

1.5 Rediscovering the World (1958 – 1988)

In 1958, Deutsche Bank made its first foreign bond investment since 1914 – Deutsche invests 50 million DM in a bond of Anglo-American Corporation of South Africa. Deutsche

Bank’s power grew rapidly, mostly due to its interwar acquisitions in Germany. Deutsche Bank had such a wide domestic branch network, that only within a couple of years, the number of domestic customers increased immensely, allowing Deutsche Bank to reinvest more and more assets. With the increase of opened accounts, Deutsche took advantage & introduced its Small

Personal Loan up to 2 000 DM to boost the retail business; which later became an integral part of its portfolio. (Historical Association of Deutsche Bank, 2010) In 1958, Deutsche also opened

26 its first foreign branch since 1945 in Hong Kong. A year later, it already operated with 8 foreign branches. It was safe to say that Deutsche Bank became again a worldwide player. In 1961, on behalf of the , Deutsche Bank led the privatization of Volkswagen. With the success of its Small Personal Loan, Deutsche bank decided to introduce more personal loans for its private as well as business clients. Deutsche’s saving accounts became more popular, in

1968, they accounted for one third of all deposits. Deutsche Bank was also one of the first banks to introduce the cheque card (former ), which offers its users a non-cash payment in

Germany. (Deutsche Bank, 2019) In 1969, the card is internationalized, at Deutsche Bank’s initiative, creating an ‘Eurocheque system’ with 18 countries accepting this form of payment.

In the same year, Deutsche opens its 1000th domestic branch. In 1974, Deutsche Bank starts offering its shares to employees in order to promote the wealth formation.

It was not only the domestic market where Deutsche dominated. In 1964, Deutsche Bank managed 10 of 12 DM bonds of foreign issuers in the amount of nearly 1 billion DM; it also managed both of the World Bank’s bond issued in Germany. In 1970, Deutsche Bank creates a syndicate of 17 institutions, which provide the Soviet Union with a 1.2 billion DM loan to finance the natural-gas pipeline; moreover, in 1972, Soviet Union is given another 1.2 billion

DM loan to finance the pipeline. 2 years after, a third loan occurs, in the amount of 1.5 billion

DM. In 1975, Deutsche Bank buys almost one third of Daimler-Benz shares; thus, preventing in from being sold abroad. Deutsche Bank incorporates Deutsche Ueberseeische Bank, which had branches in South America – Sao Paulo, Asuncion & Buenos Aires. In 1975, Deutsche manages the 2 biggest international bond transactions of the year in total amount of 1.3 billion dollars. As the global business flourished, Deutsche Bank opened many more international branches in significant cities such as London, Paris, Brussels, New York or Madrid or Toronto.

Its biggest acquisition of the 80s happened in 1986, when Deutsche Bank takes over Banca

27 d’America e d’Italia in Italy. (, 1993) Together with its 98 branches in

Italy, Deutsche Bank starts its private business for the first time outside of Germany.

The year1988 marked a remarkable position of Deutsche Bank in German economy. It held large positions in many, if not all, major corporations in the country; its senior managers sat on boards of more than 400 companies all around Germany. (Fichtner, Goos, & Hesse,

2016) “Deutsche Bank was Germany, Germany Inc., a small state within the state. Indeed, it was so powerful that many considered it at the time to be a danger to democracy.” (Fichtner,

Goos, & Hesse, 2016)

1.6 Global Market, Global Player (1989 – 2007)

In an interview in the early 1990s Deutsche’s Spokesman Hilmar Kopper stated, that

“Deutsche Bank is the biggest bank in the world with the smallest domestic market share.”

(Horwood & Orchard, 2019) After the fall of the Berlin Wall, is now open for

Deutsche Bank’s business. Deutsche immediately establishes 10 branches in the former Soviet zone. However, domestic dominance was not its biggest priority. Deutsche always wanted more. “When the globalization and deregulation of financial markets eventually reached

Germany in the 1980s and 1990s, Deutsche Bank changed its business model. It saw how much money American and British banks were making in the capital markets with bond trading, currency hedging and interest-rate transactions – and wanted to join the party.” (Schieritz, 2019)

Following recent trends, Deutsche Bank decided to acquire a UK-based investment bank,

Morgan, Grenfell & Co., building up its portfolio in investment-banking. (Prokesch, 1989)

However, this investment was quite costly, as Deutsche Bank decided to give Morgan a certain form of ‘autonomy’, which has not paid out. The strategy was set – Deutsche Bank embarked on a journey of worldwide expansion. In Austria, 1989, a Vienna based bank Antoni, Hacker

& Co. is acquired. Spanish bank Banco Comercial Transatlántico is taken over by Deutsche,

28 providing access to a big branch network in Spain. (Hernández, 1993) Deutsche was also able to grow in Pacific region, opening branches in Nagoya and New Delhi; its shares were now listed on the Tokyo Stock Exchange. In the domestic market, Deutsche Bank now starts offering life insurance, given its creation of Lebensversicherungs-AG der Deutschen Bank, which was the best after-tax asset management product in Germany. In the insurance industry, Deutsche

Bank made later in the 1990s two additional purchases: Deutscher Herold and Gerling.

However, the extremely successful year was paralyzed in November. The head of the German

Bank, Mr. , is assassinated. His murder was being connected with Eastern

Germany, nonetheless, it remains unsolved. In his memory, the Alfred Herrhausen Gesellschaft is established, promoting a free and open society and its cohesion, especially democracy and sustainability. (Alfred Herrhausen Gesellschaft, 2018) In the same year, Hilmar Kopper is appointed, running Deutsche Bank at its best, managing a balance sheet of 312 billion € in 1990.

In the 1990s, under Mr. Kopper’s administration, Deutsche Bank was the one, single bank that every other company was afraid of. No other company has been so successful at transforming its domestic business into a leading global corporation. For nearly 20 years,

Deutsche Bank was the best bank in business. Looking at Deutsche Bank today, it is absolutely unbelievable to believe how once such a huge company could have fallen so down. The bank grew too fast without the right controls. (Horwood & Orchard, 2019)

In 1990, Deutsche Bank takes over the Deutsche Kredit-bank, which was an East

German state bank, giving Deutsche Bank access to 140 branches in the whole East German.

A year after, Deutsche Bank already has 270 branch offices in the new federal states.

Altogether, Deutsche Bank operates with more than 1 700 branches only in Germany.

(Historical Association of Deutsche Bank, 2010) 1993 marked a huge expansion in Spain by acquiring Banco de Madrid. Together with Banco Comercial Transátlantico, Deutsche Bank operated with 408 branches and nearly 3 000 employees in Spain. (Hernández, 1993) The same

29 scenario was used in Italy, where Deutsche’s Italian subsidiary, Banca d’America e d’Italia, bought out (initially) 58% of Banca Popolare di Lecco (B.P.L.), later on buying out all shares.

(Deutsche Bank, 2019) The purchase of B.P.L. added new office branches in Lombardy;

Deutsche Bank operated with over 250 branches now in Italy, employing over 4 000 people. A year later, both Italian subsidiaries merge within Deutsche Bank, operating under its name. Yet

Deutsche Bank never liked to be connected with retail banking, despite their retail business in

Spain and Italy. (Horwood & Goetz, 1994) As Mr. Kopper said in an interview,

“Internationally, we prefer to be regarded as a corporate bank. We want to avoid becoming a

European retail bank. We are a European trading bank, in the best traditions of a universal bank: active in guilders in Amsterdam, French in Paris and sterling in London.” (Horwood &

Goetz, 1994) In 1994, Deutsche Bank opens its ‘Bank 24’, the first full-service telephone bank in Germany. On its mission to be closer to their retail customers in Germany, Deutsche Bank decides to open branches in shopping centers and supermarkets as well. Later on, retail and small-business clients were ‘transferred’ to (Deutsche) Bank 24. However, this decision came out wrong. “We opened Bank 24 in Germany and the idea was we offer clients a choice between those who wanted our services electronically and those who wanted to use the branches.

Instead, we automatically put all our smaller clients into Bank 24 and retained all our best clients in Deutsche Bank. This caused an uproar. It was the biggest communication mistake you could make. The typical Deutsche Bank mistake.” (Horwood & Orchard, 2019) In 1997, Mr.

Kopper moved to the Supervisory Board; being succeeded by Rolf Breuer, who was a trader by background. In 1998, another European Bank - Crédit Lyonnais Belgium was acquired. From

2003, another major bank became part of Deutsche Bank - Swiss private bank Rued, Blass &

Cie. In the next year, Deutsche Bank sets up a strategic partnership with United Financial Group

(UFG), a Russian investment company, together with a 40% stake. In 2005, Deutsche bought the remaining 60%. (Deutsche Bank, 2005) In 2006, Berliner Bank and Norisbank were taken

30 over. Together with the Berliner Bank, Deutsche Bank now has 119 branches in the German capital.

Deutsche’s biggest acquisition was made in late 1998. Deutsche Bank wanted to be seen as a major investment bank, however, it lacked the ‘right’ employees. Bankers Trust, the

American investment bank, was bought for $10.1 billion to highlight Deutsche’s presence in the global . This purchase was the largest foreign takeover of an American bank; moreover, after completing this deal, Deutsche Bank became the world’s largest bank in assets worth of € 741 billion. (Andrews, 1998) However, in the United States, this purchase has drawn public attention to several lawsuits against the German bank regarding its participation under the Nazi regime, settled in 1999 with a $5 billion settlement. But what mattered the most was that Deutsche Bank had finally presence in the world’s financial Olympus – Wall Street,

New York. Deutsche’s shares were listed on the New York Stock Exchange in 2001. (Deutsche

Bank, 2019) In the next year, Scudder Investments was acquired, strengthening Deutsche’s U.S. presence. (Kapner & Sorkin, 2001) In fact, Deutsche Bank became more and more American, slowly pushing its ‘German-ness’ out. Journals all over Germany started reporting that the

German employees are feeling ‘left behind’. Once proud of working for the biggest German institution, German employees were suddenly estranged; operating only with the unavoidable bread-and-butter domestic business of managing loans and accounts. The ‘big money-makers’ were in New York and London. “It was a clash of two different cultures that could not be reconciled: that of the modestly growing German corporate and commercial bank, which saw itself as an institution operating with an eye to the long-term, and of the world of the investment bankers, whose primary aim was to earn money in the here and now, future to be damned.”

(Fichtner, Goos, & Hesse, 2016) In this battle of two worlds, money won. Neither Mr. Kopper,

Mr. Breuer nor (later on) were able to lift Deutsche’s traditional domestic business. In 2002, Mr. Ackermann was appointed the new Spokesman; the first foreigner to

31 lead Deutsche Bank. Mr. Ackermann was an authoritative leader, who was not afraid of conducting risky operations. During the ‘crisis before the crisis’ in 2002, when most banks downsized & cut their costs, Mr. Ackermann made almost no cuts with hopes to ‘cash in’ in the upswing. It worked. On the other hand, he downsized the management board from nine members to four and established a new body: Group Executive Committee (12 members), which became the new center of power. (Historical Association of Deutsche Bank, 2010) Under

Ackermann, the investment division had easier access to bank’s resources. The investment teams in New York & London, cut from Frankfurt’s headquarters, were still being too independent, without proper compliance or risk management support. Still, each deal had to be approved by Frankfurt, which turned out not to be a problem, as Frankfurt had no proper risk management personnel. American teams were not afraid to take an advantage of it. (Fichtner,

Goos, & Hesse, 2016) Deutsche Bank started to lose its control. It grew way too much & way too fast. Mr. Ackermann allowed no critique for his aggressive expansion. In fact, his biggest board critique – Thomas Fischer, had to leave the bank after several confrontations. His departure not only ended the internal resistance, it marked the end of the bank’s internal audit of checks and balances as well. (Historical Association of Deutsche Bank, 2010) In 2006, Mr.

Ackermann was appointed to be the ‘Chairman’ of the Management Board, which was an equivalent of the classic American ‘CEO’. The only German aspect left in Deutsche Bank was its name; while an Anglo-American investment bank was being born.

In 2007, Deutsche Bank was the greatest bank in the world, employing more than 78 000 people. (Deutsche Bank, 2008) Its total assets were seven times bigger than in 1990 – a sum of

2 trillion €; with unimaginable return on equity – 18%! (Horwood & Orchard, 2019) Over the next decade, the combination of immense growth, slow decision making & unfair business practices led to its decline. “The era of enormous excesses began, an era of ludicrous mistakes and of intentional and frivolous misdeeds whose legal ramifications are still eating away at

32 Deutsche Bank’s balance sheet.” (Fichtner, Goos, & Hesse, 2016) It all starts with the global financial crisis & Deutsche’s part in it.

1.7 Financial Crisis Years & Its Consequences (2007 – 2012; 2013 - 2019)

Year 2007 started for Deutsche Bank as any other year. Retail business was launched in

Poland and China. New branches were opened in Qatar, Algeria & Finland. However, in the

United States, something was about to happen. The subprime (high risk) mortgage bubble, which has accumulated over the past recent years, exploded. Regrettably, one of the many reasons behind the explosion was Deutsche Bank. German bank was one of the major traders of the Collateralized Debt Obligations (CDOs), which is a “complex structured finance product, backed by a pool of loans and other assets and sold to institutional investors. In order to create a CDO, investment banks gather cash flow-generating assets – such as mortgages, bonds, and other types of debt – and repackage them into a discrete class, or tranches based on the level of credit risk assumed by the investor.” (Tardi & Chen, 2019) “CDOs allowed financial institutions to benefit from the fact that only a few homeowners default in any given time, so that most mortgages are safe.” (Temin, 2010) The upcoming repayments were seen as an

‘collateral’ and this gave CDOs their value in the market. Between 2004 and 2008, financial institutions in U.S. issued nearly $1.5 trillion worth of CDO securities, given “this complex finance product proved to be highly profitable.” (United States Senate, 2011) Interest rates for mortgages were quite low, encouraging Americans to buy them. Investing in a house was a

‘sure bet’, as prices of houses had a rising tendency. Mortgage brokers were keen to sell even a 3rd or 4th mortgage to one person. Brokers were not afraid of defaulting, as they could simply sell the mortgage to any Wall Street bank, which would profit by listing the mortgage to CDOs.

CDOs were structured in tranches, and each tranche reflected the risk. Investing in ‘AAA’ tranches was considered to be the safest, offering lower coupon rates and first claim on the

33 collateral. On the contrary, ‘B’ tranches were made up of riskier mortgages and offered higher coupon rates, however, these were paid last. These products were so complex, that investors relied on certain rating agencies, which rated the mortgages. As it was very easy to get a mortgage, it was just as easy to get a good rating. The rating agencies were eager to provide a good rating, since they knew that the client would receive it in another agency anyway. (Zaidi,

2016) Some mortgage brokers had contacts in rating agencies, guaranteeing success of their deals. The system was skewed. This scheme resulted into a high increase of AAA tranches, which turned out to be the trigger of the crisis. When the economy faltered and massive default of mortgages began, tranches were left worthless.

Over the years 2004-2008, Deutsche Bank created CDOs in approximate worth of 32 billion dollars. (United States Senate, 2011) In the early 2007, house prices began to decline, thus investors started worrying about their CDO investments. However, banks continued to issue them, reassuring investors that the decline is only temporary. Ratings agencies reacted with lowering credit ratings for many CDO products, yet banks continued to massively market

& issue even new, complicated ‘Residential Mortgage Backed Securities’ (RMBS) - existing

CDO securities rebranded in ‘packages’ of more complex CDOs. Yet Deutsche Bank was not blindfolded. One of its top experts, Greg Lippmann, who was the head of asset-backed trading, expressed his concerns in the middle of 2005 - warned and advised his colleagues of a possible mortgage market crash; recognizing the poor quality of various tranches and predicting its value decline. (United States Senate, 2011) Despite disagreeing with his views, Mr.

Lippmann was allowed to buy short positions in the RMBS market – just in case. However,

Deutsche Bank was not willing to pay the ‘premiums’ – payments for these short positions. In order to zero its costs, Mr. Lippmann, among many others, encouraged Deutsche’s clients to buy these shorts as well, so the bank receives payments for these positions. Nonetheless, at the same time, Deutsche Bank continued to operate its CDO Machine; creating multiple CDO

34 products, despite knowing they might not be the best investment for their clients. In March

2007, right before the crisis started, Deutsche Bank helped to launch ‘Gemstone 7’, which was a CDO product valued at $1.1 billion, consisting mostly of high-risk, subprime mortgages, yet with the twice-approved rating ‘AAA’. Mr. Lippmann’s team was involved in this process; but done nothing to stop it. In fact, Deutsche Bank offered its sales executives special financial incentives for selling Gemstone 7. (United States Senate, 2011) Deutsche Bank sold nearly 70% of this product. In 2008, the whole Gemstone 7 was downgraded, and investors lost their money.

By the end of the year, Gemstone 7 was worthless. In 2008, Deutsche Bank decided to cash out its short positions, earning a profit of $1.5 billion. (United States Senate, 2011) “On the eve of the financial crisis, the bank allowed itself a particularly notable bit of treachery, one which destroyed what was left of its once unassailable reputation. It didn’t just sell its customers securities whose worthlessness was already apparent to the bank’s own traders, but allowed its own investment bankers to place bets on Wall Street on those securities’ further loss of value – and grab just a bit more off the top at the cost of its own customers.” (Fichtner, Goos, & Hesse,

2016) In 2010, Mr. Lippmann leaves Deutsche Bank. His story is also shown and explained in the Oscar-nominated movie The Big Short.

Crisis as Opportunity - the ‘slogan’ of Deutsche Bank’s 2008 Annual Report. In spite of creating various questionable opportunities, the year 2008 posted bank’s first annual loss in over 50 years; a total of $-5,732 billion, which was its record loss (at the time). (DB Annual

2008) Its investment sector alone lost more than $10 billion, a bitter aftertaste of crashing mortgage market. Still, Deutsche Bank, unlike many other financial institutions, needed no government aid and survived this crisis on its own; especially thanks to its record profits in

2007; in which it recorded the all-time high share price of $120 on the New York Stock

Exchange. By January 2009, its share price tumbled to less than $20. However, Deutsche Bank was nowhere near collapse – yet. Its biggest problems just begun.

35

Figure 2: Year-over-Year growth (Macrotrends, 2019)

In 2009, despite the European debt crisis, Deutsche Bank was back on track. Its share price was slowly recovering. A possible takeover of Deutsche Postbank was real; 25% of its share capital was already owned by Deutsche Bank; adding millions of its customers and strengthening domestic business. In China, Deutsche forms a new investment entity in Beijing, as well as a branch in Tianjin. Deutsche Bank decided to raise its stake in ‘Hua Xia Bank’ to

17%. Given the economic circumstances in Europe & U.S., Asian region was seen as a driver of revenue growth. With crisis striking in South Europe, Deutsche estimated its credit risks ~

€30 billion in Spain and Italy; as these 2 countries accounted for a tenth of its European private business. (Der Spiegel, 2012) Still - financially, Deutsche Bank performed a miracle, recording a profit of $6,9 billion, with majority coming from its investment sector, as well as profits from the bailout packages addressed to many European banks and institution during 2008. (Deutsche

Bank, 2009) It is essential to remind, that during financial crisis, majority of Deutsche’s direct competitors were either unable to compete or were out of business. Still, Deutsche Bank had an advantage over its rivals – the bank did not really trade with its money. It is true, that during the financial crisis, most banks’ Debt-to-Equity ratio (D/E) skyrocketed. On the other hand,

Deutsche’s D/E was never low to begin with. Debt-to-Equity ratio represents how much of a company’s investments comes from debt or equity. (Maverick, 2019) The higher the ratio, the more debt finances company uses. Naturally, banks and other financial institutions have higher

D/E ratio, given the fact they use mainly their clients’ capital & their assets are mostly fixed in its branch network. Overall, an optimal D/E ratio for banks is considered be ~ 1.5 or lower;

36 ratios higher than 2.0 raise doubts. In early 2009, Deutsche’s D/E ratio was over 4.30 and has not dropped below 3.0 until 2012; as regulators started to force financial institutions to run their operations with less debt and more equity. As terrific as its 2009 recovery was, Mr.

Ackermann’s plans were quite sneaky, as he was well aware of the fact that during the crisis,

Deutsche Bank had never been on the market with its own skin.

Figure 3: Deutsche Bank's Debt-to-Equity Ratio (Macrotrends, 2019)

1.8 Major Controversies

1.8.1 Lawsuits, Lawsuits and More Lawsuits

Over the last decade, Deutsche Bank spent on penalties more money than throughout its whole existence. Given its enormous growth in the 2000s, Deutsche Bank was quite chaotic.

Domestic German market started being insignificant in terms of earnings, while its American investment division prospered, until it became a victim of its own success. As already explained, Deutsche Bank grew so fast that it failed to adapt serious internal policies & standards regarding Compliance and Law. Under Mr. Ackermann, Deutsche’s investment division was almost unregulated with very little supervision from Frankfurt. U.S. bankers, blindfolded by greed, conducted riskier and riskier operations until it became unsustainable.

Deutsche Bank received its first ‘slap in the face’ in 2006. New York Attorney General charged the German bank with trading violation; resulting into a $208 000 000 penalty. (Office of the

Attorney General, 2006) Deutsche’s traders were using a method of ‘substitute late trading’; where client’s trades were placed right before the close of market and therefore, rejected by a fund company. Given the fact, that the trade was rejected, the client had right for

37 a ‘substitute trade’ dated to the market end. Executing this scenario, the client could have gained new, essential knowledge, which gave him an unfair advantage. In 2008, Deutsche Bank together with Goldman Sachs & Lynch agreed to buy back $10 billion in securities from its customers due to their false (misleading) advertising of auction rate securities. (Office of the

Attorney General, 2008) A major fine was issued in 2010, when Deutsche Bank agreed to pay a $553 million to the United States, admitting “criminal wrongdoing in financial transactions which furthered fraudulent tax shelters, that generated billions of dollars in U.S. tax losses.”

(U.S. Attorney - Southern District of New York, 2010) Following year, Deutsche Bank

(together with Citibank) paid a total of $165.5 million to 5 failed credit unions, reaching a settlement regarding potential allegations related to the sale of RMBS. (Simon, 2011)

In the 2010s, Deutsche Bank’s Legal department was facing thousands of lawsuits. In

2012, its RMBS wrong-doing began to be discovered – Deutsche Bank settled to pay $202.3 million to the United States in connection with the RMBS scheme. (U.S. Attorney - Southern

District of New York, 2012) In 2013, the German titan agreed to pay a $1.93 billion to the U.S., the second-largest regulatory settlement regarding selling of RMBS, where “the settlement resolves a lawsuit accusing the German bank of misleading Fannie Mae and Freddie Mac,

America’s biggest providers of housing finance, into buying $14.2. billion in mortgage-backed securities.” (Gould & Raymond, 2013) The coup de grace was given in 2016, when Deutsche

Bank agreed to pay $7.2 billion for ‘misleading the investors in the packaging, securitization, marketing, sale and issuance of RMBS between 2006 and 2007.’ (U.S. Attorney - Eastern

District of New York, 2017) To make matters worse, Deutsche Bank had to agree with the releasement of ‘Statement of Facts’, which in detail describes that Deutsche Bank was very well aware that it misled its investors; which was an eye opener for public. Altogether - this case was the single largest RMBS resolution ever. Deutsche Bank has now been finally held accountable for its sneaky, double-edged strategy of handling the CDOs. Nevertheless, since

38 2017, Deutsche Bank has paid more than $1 billion on various lawsuits including investor protection violation, trading violation, interest rate manipulation or toxic security abuse. Since

2012, Deutsche Bank already paid over $15 billion for litigation, still, some cases remain unresolved yet. Last decade wrapped up in one sentence: a vicious circle of lawsuits haunting

Deutsche Bank’s management whenever they thought their past is already behind.

1.8.2 Libor Scandal

In 2012, Deutsche Bank was involved in the Libor scandal, where multiple banks manipulated interest rates in order to maximize profit, dating all the way back to 2003. Libor, or the London Interbank Offered Rate, is a “benchmark interest rate based on the rates at which banks lend unsecured funds to each other on the London interbank market; published daily.”

(McBride, 2016) In order to ‘boost the numbers’, bankers reported false interest rates, either very high or low. This operation benefited their derivatives traders and banks themselves, as

Libor was used to indicate a bank’s financial health. Evidence has shown, that Deutsche Bank was involved in this operation (at least) between 2005 – 2009. Among many others, Deutsche

Bank has been also pleaded guilty and fined $2.5 billion. This fine was the largest single settlement regarding Libor, with Deutsche Bank paying twice as much as any other institution did.

1.8.3 Espionage Scandal

In 2009, the Frankfurt Federal Prosecutors Office started investigating a possible breach of data security at Deutsche Bank. It appears, that in the period between 2001 and 2006, its leading executives, including its CFO, Clemens Börsig, hired external ‘detective agency’ to solve their security problems using ‘unorthodox methods’. The bank started its own investigation, hiring a law firm, which resulted into a termination of 2 of its employees – Head

39 of its Corporate Security and Head of its Investor Relations. (Wilson, 2009) According to The

Wall Street Journal, Deutsche Bank monitored up to 20 people, including its shareholders, criticists, journalist and even a member of its supervisory board, who was suspected of leaking bank’s news to news agencies. (David Crawford, 2009) Moreover, some of these espionages could have been ordered only by Mr. Börsig or Mr. Ackermann himself. In its Press Report,

Deutsche Bank admits that according to its internal investigation, four incidents have been identified. (Deutsche Bank, 2009) Deutsche Bank managed to settle this case a day before the trial, informing all the persons affected and expressed its regrets.

1.8.4 Trump Relations

Deutsche Bank, the bank that kept saying yes to Donald Trump - for decades. In the late

1990s, the major German bank started its mission to conquer U.S. investment market. Deutsche

Bank was willing to make loans other banks refused to; either for their complexity or size - as

Deutsche was relatively new to Wall Street, they were keen to take more risks than anyone else in the business did. Deutsche knew that there are many potential clients, who are considered to be too risky for other banks, so Deutsche Bank decided to fill this void. For this mission, some

Wall Street bankers & traders were hired. One of them was Mike Offit. At that time, Donald

Trump was a magnate, to whom no bank was willing to lend money, as he cost them millions of dollars on defaults. He was the embodiment of a credit risk. Mr. Trump was looking for a big loan, yet no bank even wanted to talk to him until he approached Deutsche Bank – Mr. Offit accepted their meeting. (Enrich, 2019) A loan of 125 million dollars was quickly approved and issued. In a little while, Mr. Trump received a second, bigger loan of

$300 million. Third loan should have been even bigger – Mr. Offit promised hundreds of millions of dollars for a new casino. This loan was never issued; in fact, it ended Mr. Offit’s career at Deutsche Bank. One of Deutsche’s executives found out that the signature on the

40 approved loan has been forged. (Enrich, 2019) However, Mr. Trump remained to be connected with Deutsche Bank. In fact, Mr. Trump became bank’s ‘ambassador’, a celebrity participant, visiting golf tournaments and internal events, participating on promotional videos. Mr. Trump even promised the bank’s salesmen a weekend holiday in his private club Mar-a-Lago if they sell enough shares of Trump Hotels & Casino Resorts. They were highly successful. In 2004,

Trump Hotels & Casino Resorts defaulted. (Enrich, 2019) Deutsche Bank’s clients suffered tough losses and the bank learned another lesson of doing business with Mr. Trump. Or did not they?

A year later, Mr. Trump came to Deutsche Bank, seeking for another loan to build a skyscraper in Chicago. Despite many red flags, warnings & previous experience, Deutsche

Bank agreed to lend Mr. Trump ~ $500 million. The loan was due in 2008, when the financial crisis stroke. Mr. Trump sensed an opportunity and refused to pay the loan back until 2010, when another he needed another loan in order to repay his previous loan. (Enrich, 2019) The bank almost granted him this contract, but its executives pushed back this loan, as it could soon set a horrible precedent. Eventually, this deal reached Mr. Ackermann, who decided to approve it. Donald Trump won again – one arm was paying off a loan issued by another arm of this bank. In Deutsche Bank, Mr. Trump had an exceptional relationship with 2 of its top investment executives – Rosemary Vrablic and Thomas Bowers. In early 2014, Mr. Trump wanted to buy an NFL franchise, which could ramp up to $1 billion. He handed Ms. Vrablic financial statements, which claimed his net worth ~ $9 billion. However, as Deutsche Bank’s analysis has found, Mr. Trump exaggerated. His assets were inflated by 70%. (Stampler, 2019) Still,

Ms. Vrablic granted Mr. Trump a possible loan if his bid would win. Luckily for Deutsche

Bank, his bid did not win. Presidential elections were coming, and Mr. Trump’s rhetoric became more and more dangerous. Yet Ms. Vrablic continued to approve his loans. In 2015, he received his last loan – $170 million for the renovation of the Old Post Office building in Washington.

41 (Winck, 2019) In total, around $300 million were granted to the soon-to-be president by Ms.

Vrablic alone. In early 2016, when Mr. Trump was one of the leading candidates in the elections, Deutsche Bank’s risk committee refused to grant any more loans to Mr. Trump.

(Enrich, 2019) After his win in elections, Mr. Trump still had about $300 million to pay from his previous loans.

In April 2019, Deutsche Bank and several other banks were subpoenaed by House

Democrats for Mr. Trump’s financial records. (Scannell & Herb, 2019) Soon after, Mr. Trump sued Deutsche Bank in order to restrict them from turning over his financial records. In May, a federal judge rejected Trump’s case; Deutsche Bank “was obliged to comply with subpoenas.’

To this day, the investigation is ongoing, as Mr. Trump repeatedly appealed against Court’s decision. On December 3rd, the 2nd US Circuit Court of Appeals confirmed that ‘the House of

Representatives may subpoena President Donald Trump’s bank record from Deutsche Bank.”

(Scannell & Herb, 2019) The symbiotic, decades-long relationship suddenly became a time- bomb. Deutsche Bank now has the duty to uncover Mr. Trump’s deepest financial secrets, which Mr. Trump tried to keep hidden from the public for years - knowing that while Mr.

Trump’s administration persists, their next move could easily backfire to them. A former Slovak politician once said: ‘Win the elections and you can do practically anything.’ In this case, the upcoming U.S. Presidential elections will be key, as Deutsche Bank will have to publish some explosive data for the whole public to see.

42 1.8.5 Money Laundering

In 2017, Deutsche Bank agreed to pay ~ $630 million in penalties to authorities in the

U.S. and in the U.K. The root of these penalties was mirror trading. A mirror trade, as explained by Bloomberg, is “a two-stock transaction in two separate location; taking money out of one market and moving it to another. In this case, Deutsche Bank helped its clients buy Russian blue-chip shares in Moscow with local currency and at the same time, it helped them to sell the same quantity of shares in London – rubles in Russia became dollars abroad.” (Grocott &

White, 2017) Using this scheme, Deutsche Bank helped to launder over 10 billion dollars from

Russia, while evading compliance with applicable laws. In its Statement, the New York

Department of Financial Services states, that “the bank missed numerous opportunities to detect, investigate and stop the scheme due to extensive compliance failures, allowing the scheme to continue for years.” (Department of Financial Services, 2017) Russia’s stated, that just between 2014 and 2016, more than $13 billion left the country through Mirror trading, via various other banks as well.

In 2018, Deutsche Bank was participating in another money laundering wrongdoing conducted by Danske Bank. The whistleblower, former head of Danske Bank’s trading unit, testified at Danish parliament, that between 2007 – 2015, hundreds of billions of dollars were flowing through its Estonian branch office. (, 2018) The whistleblower also revealed, that another major European bank was involved in this process, handling payments in amount of $150 billion. Deutsche Bank replied that it ‘terminated the relationship in 2015 after identifying suspicious activity.’ (Jensen & Gronholt-Pedersen, 2018)

As of today, the U.S. prosecutors are still investigating Deutsche Bank’s participation in a multibillion fraud scandal, which looted one of the Malaysian government funds. (Flitter, 2019)

43 2 Deutsche Bank Today

Earlier this year, , Deutsche’s CEO announced, “the most fundamental transformation of Deutsche Bank in decades.” (Deutsche Bank, 2019) “We are tackling what is necessary to unleash our true potential: our business model, costs, capital and the management team. We are building over strengths. This is a restart for Deutsche Bank – for the long-term benefit of our clients, employees, investors and society. In refocusing the bank around our clients, we are returning to our roots and to what once made us one of the leading banks in the world.” (Deutsche Bank, 2019). As of Q3 2019, Deutsche Bank had 89 958 employees. As a part of this restructuring, Deutsche Bank will cut 18 000 jobs in the following years, which equals to 20% of their current staff.

NUMBER OF EMPLOYEES 120000

102062100995 101104 98219 98254 98138 99744 97535 100000 91737 89958 86524 78291 80456 80000 77442 77053 67682 68849 65417 63427 60000

40000

20000

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Year

Figure 4: Deutsche Bank: number of employees. Data taken from various Annual Reports. (Deutsche Bank, 2017)

44 The bank has not specified yet which jobs will be lost, but it is to be expected that most jobs will be cut in its Investment Bank, which will completely exit various activities like buying or trading of shares. This evolution is understandable, as its Investment bank already tried several times to revamp its business, unsuccessfully. Their investment activities were also the cause of Deutsche’s global decline & storm of litigations; however profitable they were at the beginning. Deutsche Bank’s biggest trade centers are in London and New York, which likely will be the places of most job cuts. The estimate cost of this transformation will be around €7,4 billion, with planned finish in 2022. A new unit was created, which will manage & trade assets the bank no longer wants or needs to keep; in an estimated value of €75 billion. For this matter,

Deutsche Bank has confirmed a preliminary agreement with BNP Paribas. (Deutsche Bank,

2019) Moreover, many internal departments will be moved, abolished, or either divided or combined. On paper, the bank will save €17 billion by 2022. (Jack, 2019) After Deutsche Bank exits the investment sector, the only European investment bank left on Wall Street remained

Barclays, a British based bank.

This reconstruction is a result of unsuccessful negotiation with Commerzbank. The 2 biggest German banks said, that the risks and costs were too great, and the pros would simply not offset the future cons. (Reuters, 2019) German finance minister, Olaf Scholz, supported the negotiations, in hopes to end questions regarding the uncertain future of both banks – given their low profitability in the recent years.

Numbers do not lie. The aftermath of the crisis years was cruel to Deutsche Bank’s financial conditions. However, we cannot only blame “the invisible hand”. After a serious of enormous errors, Deutsche Bank is not trusted anymore. How many more skeletons hidden in the closet are waiting to be found? How can a bank, that deliberately sink its clients’ money for its own well-being, earn publics’ trust again? How easily could that happen – again? These are

45 just a few examples of questions an investor asks, before entrusting his money. And despite being at an all-time low, the bank has not yet gained people’s trust.

Figure 5: Deutsche Bank's stock price (Yahoo, 2019)

Figure 6: Deutsche Bank's stock price, percentual (Macrotrends, 2019)

46 Deutsche Bank’s shares are currently traded at $7.22 per piece. The bank had numerous opportunities to recover over the past few years, yet its stock price continues to decline; not only due to their never-ending legal troubles or public picture. One of the basic rules of investing is the saying “buy low, sell high.” With Deutsche Bank, there have already been so many lows one cannot recognize what should be low enough to buy. So why is no one buying its stock? Mainly due to the fact the bank is unable to make profits. With no profits, investors will not fall for these dangerously low laid shares.

Figure 7: Deutsche's Bank Net Income, Shareholder's Equity and Return on Equity (ROE)

“Return on Equity (ROE) is a measure of financial performance calculated by dividing net income by shareholder’s equity.” (Hargrave, 2019) In the banking sector, a 10% ROE is considered successful. (Dumortier, 2018) A benchmark Deutsche Bank has not touched since

2009, which was a very successful year for the bank – given the circumstances. Unfortunately, over the past years, the numbers are negative, without any hints of improvement. The bank targets 10% ROE not sooner than 2021, but at the very moment, this target seems very far away.

47 Even the recent reconstruction, announced by Mr. Sewing, went almost unnoticed by the market. Deutsche Bank is simply not making money and the investors know it. In 2008,

Deutsche’s dividend payout was $5.98. In 2008, shareholders received only $0.07. Now we know, that due to the restructuring, there will be no dividend paid out until 2021. It is now almost certain, that 2019 was another loss-making year, given the $3.5 billion loss in Q2 of

2019, the worst quarterly result since financial crash in 2008. Mr. Sewing’s plans are not only courageous – they will most certainly define the survival of once the biggest bank in the world.

“Despite all the difficulties, I believe we’re on the right track.” (Horowitz, 2019) For now, shareholders believe in Mr. Sewing, but patience is running thin. Its former Head of foreign exchange, Kevin Rodgers, expressed hope in the new management, which already started hiring new, talented people to help with Deutsche’s recovery process. (FinExtra, 2019) “Deutsche

Bank still employs a huge number of extremely talented people despite some recent departures, but it faces a long, hard road to recovery. That road will be shorter and easier if those extremely talented people can learn to work together as teammates, not rivals. That is the overriding challenge facing Mr. Sewing and his colleagues.” (Rodgers, 2018) Only time will tell.

48 Conclusion

There are only a few companies, in the modern history of our world, which have experienced as many political regimes, as many different cultures and as many revivals as the

German banking giant, Deutsche Bank did. For generations, Germans were proud of this institution, which represented the best (and the worst) German attributes.

However, the former pride of Germany is dead – the work of many German generations went down the drain. The birth of American investment bank predetermined the way that the bank must wade today; mostly unsuccessfully and in disdain for the general public. “Deutsche

Bank had made a bet on giving up on the German model and becoming a poster boy for globalization; finance globalization via extreme leverage.” (James, Foreign Policy, 2016)

Ethics and morality have completely disappeared from bank’s value chain; they were replaced by greed and selfishness. Deutsche Bank still pays for these mistakes. Regrettably, we are told that no one is to blame.

In a few months, Deutsche Bank will celebrate its 150th anniversary. In 1870, Deutsche

Bank was a small, local bank with huge foreign plans. By 2020, Deutsche Bank will still be this huge, international giant; yet wishing it stayed local in the first place. History has shown, that each time Deutsche Bank suffered severe damage, it was the domestic market which slowly lifted the bank up. The “domestic card” was used by Deutsche’s Management this year as well; with hopes for its recovery. There is only one small difference: in the past, Deutsche Bank had to pay bills for Germany’s political sins & mistakes, as it was always cooperative with the

German government. The situation the bank can be found today is caused solely by its own decisions & poor leadership. For decades, Deutsche Bank participated in several heinous activities and never learned a lesson; as money is a great motivator. Once money was gone, so

49 were the “whales”. It has been written countless times that Deutsche Bank has to shrink significantly so it can survive and try to get back up again – and already started doing so.

It is no surprise, that Deutsche’s financial records in the recent years display only weaknesses. In fact, the bank is beginning to dangerously accurately resemble Lehman

Brothers, a financial institution which filed for bankruptcy in 2008. However, with the new

CEO, Mr. Sewing, there is hope for better tomorrows. There is hope that Deutsche Bank will finally become Deutsche - again. Looking at the current state of this institution – for a change, being German would really help. And all we can do right now is hope.

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