FINAL PROJECT the Rise and Fall Of
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University of New York in Prague School of Business Bachelor of Business Administration Program FINAL PROJECT The Rise and Fall of Deutsche Bank – 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 Deutsche Bank – 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 history of Germany, 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 Frankfurt, 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 banks 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 stock 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, Capital market, 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 & Weimar Republic (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 Libor 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 Prussia, 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 Anshu Jain, 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