Historical Association of Deutsche Bank Bank and History Historical Review No. 6 Beginning of November 2004 A marriage of convenience 75 years ago: the big merger of 1929 In 1929, two Berlin banks joined forces that team of the competitor: “I am afraid that be- had pitted their strengths in competition tween Disconto-Gesellschaft and ourselves against one another over several decades. lasting peace and honest agreement are im- Both were leaders in capital markets, and possible. Salomonsohn [...] is insincere and both had excellent contacts to big industry fully unreliable; Solmssen, who I hold to be and international finance. But despite the an upright man, has yet to make a decision; common aspects in the structure of their Schoeller is a show-off, whose primary con- business, there were fundamental differ- cern is all too frequently the canapés, and ences between the two. Peter Brunswig, who cannot forgive us for having so resound- Deputy Member of the Board of Managing ingly surpassed his institution.” Even if a Directors of Deutsche Bank at the time of the quarter of a century later, when a different merger, described them concisely: “Deutsche generation was at the helm, and Gwinner Bank was entirely consumed by the com- was relegated to observing events as a mercial spirit. Every big company has a cer- member of the Supervisory Board, there was tain tendency towards bureaucracy, but at no doubt about it: The merger of the long- Deutsche Bank this tendency was repressed time competitors was a marriage of conven- as much as possible. At Disconto-Gesell- ience, and not of love. schaft, however, they had accepted it much A merger of this scale was the high point of more extensively. Years earlier, old Carl Für- the increasing consolidation in German bank- stenberg from the Berliner Handels- ing in the 1920s. The usual procedure was Gesellschaft had said: ‘Disconto-Gesell- that regional stock corporation banks, which schaft? That’s not a bank, that’s a bureau- had established a branch network by taking cratic department.’” over several smaller private banking houses, Starting in the 1860s, Disconto-Gesellschaft were themselves merged into Berlin’s big was undisputedly Germany’s most important banks. The big banks thus came into the bank – today it has been forgotten. Deutsche possession of their wide-spread branch net- Bank was the first of Disconto-Gesellschaft’s works throughout Germany. Although Dis- competitors that grew to be a match for it, conto-Gesellschaft had already joined forces and they waged stiff competition on the capi- in 1895 with Norddeutsche Bank in Hamburg tal markets. At the latest by the 1890s, and with A. Schaaffhausen'scher Bankverein Deutsche Bank had overtaken Disconto- in Cologne in 1914, it had allowed its re- Gesellschaft. In 1905, Arthur von Gwinner gional banks to retain their legal independ- wrote to the New York representative of ence – whereas Deutsche Bank downgraded Deutsche Bank and characterized Disconto- these regional banks immediately to Gesellschaft managers as men, “who bitterly branches. This noble gesture on the part of hate us. You are aware that this bank of very Disconto-Gesellschaft, however, was to the old standing [...] had been accustomed for detriment of a streamlined organization over decades to play the first fiddle in German the long term. Only during WW I did Dis- ‘haute finance’. It is only natural that they conto-Gesellschaft change its strategy and should feel sore about having been out- begin integrating regional banks it took over stripped by the Deutsche Bank in every re- directly into its organization. In addition, key spect.” And in his penchant for bluntness, if branches were opened directly. At the time of not dramatic formulations, he passed a con- the merger, Disconto-Gesellschaft’s branch demning judgement on the management network was only half as large as Deutsche Bank’s, although it had kept pace in the ex- and Mitteldeutsche Credit-Bank led with their pansion with all of the other big banks. merger in February, fuelling speculation on The major cause for the rapid consolidation other combinations of leading institutions. in the banking sector in the 1920s was the Questions arose as to whether Disconto-Ge- pressure to reduce costs. Because many re- sellschaft’s advances into Saxony – a branch gional and privately owned banks were even had been opened in Leipzig in August – less able to get a grip on costs than the big would develop into a takeover of the All- banks, mergers were the consequence, gemeine Deutsche Credit-Anstalt. In fact, along with the subsequent attempt to form however, Disconto-Gesellschaft was already more effective organizational units. The con- conducting secret negotiations with Deutsche ditions for banks had dramatically deteri- Bank. orated during the periods of war and inflation. Although revenues increased enormously, net profits did not keep pace with the devel- opments – on the contrary: They were sharply reduced through the steadily increas- ing administrative costs. During the ensuing years of inflation, the number of employees also increased signifi- cantly. At Disconto-Gesellschaft, it reached the record number of 17,400 staff members in fall 1923 – more than twice that of the last year of peace. At Deutsche Bank, the in- crease was even greater: In 1923, 32,979 staff members were employed compared to 6,638 in 1913. Dramatic savings in personnel set in immediately after the stabilization of the currency. In addition, streamlining meas- ures were taken, such as the introduction of modern bookkeeping machines, which to a large extent were already based on the use of punch cards. The big banks were among the first to use these expensive machines. Despite the advanced state of technology, The main building of Disconto-Gesellschaft in profit margins remained below that of the Berlin on the boulevard “Unter den Linden” was pre-war period. Success was not achieved in emptied after the merger and sold, with all of its decisively reducing the administrative costs. contents, to the German Reich in 1933. Disconto-Gesellschaft was also confronted The initiation of the two banks’ connection with the additional problem it saw in the can be traced back to 1926 during the sum- strongly expanding competition, which threat- mer holidays in Graubünden, where Robert ened to contest its accustomed rank in the Pferdmenges, member of the board of man- hierarchy of big banks, above all Danat- agement at A. Schaaffhausen’scher Bank- Bank, which had expanded aggressively in verein, met Oscar Schlitter from the Board of the 1920s. After 1924, Danat-Bank as well as Managing Directors of Deutsche Bank. After Dresdner Bank pulled ahead of Disconto- returning to Cologne, Pferdmenges informed Gesellschaft based on total assets as well as his colleague Georg Solmssen, who was debitors and creditors. Disconto-Gesellschaft also a proprietor of Disconto-Gesellschaft. thus fell back to fourth place among the big Solmssen recorded this report in handwriting, banks in Berlin. Only measured on equity which is the only reason these steps are capital did Disconto-Gesellschaft remain the known at all. In this report he mentioned that second largest of the German banks. the initiative came from Deutsche Bank after Further consolidation suggested itself due to negotiations with Danat-Bank had fallen the reduced profits of the big banks, no through. longer in the form of takeovers, but rather as Despite the two parties’ shared belief that in- mergers among equals. And thus, 1929 was dustrial financing and high costs neces- the year of big mergers in the history of sitated a merger, no further concrete dis- German banking. Commerz- und Privat-Bank cussions followed. Progress was first made 2 when Deutsche Bank began to look around opinion regarding the enormous size of the for other partners. At another meeting in new institution, we request that you make it Switzerland, this time in the summer of 1929, your business, especially for the medium and between Schlitter and Eduard Mosler, repre- smaller-sized customers, to display, through senting Solmssen, who was prevented from your willing interest in their wishes, that every attending, discussions moved much closer to person and every company is welcome to us, an agreement. In Berlin, Mosler continued also in future, as our customer.” Shortly af- negotiations with the Spokesman of the terwards, the branches were instructed “to Board of Managing Directors, Oscar Wasser- have a few lines about the pending merger mann. “Their confidential conferences took sent to the entire clientele. This at least place [...] in a Berlin bachelors' home, where should counteract efforts stemming from they were secure from every indiscretion, ac- various corners to create the impression that tually in the flat of a Director of Deutsche the customers in future [...] would have less Bank, Dr. Bonn,” as the Hamburgische Cor- of an individualized treatment to expect from respondent knew to report. The final negotia- us. This must not, however, [...] under any tions were held in a somewhat larger circle; circumstances, involve a letter reproduced in but keeping the merger plans a secret until any manner whatsoever; on the contrary, in their conclusion was a success. It was only every case a typewritten letter is to be drawn during the stock market session on Septem- up, complete with the original signatures of ber 26, 1929 that it became known that in the those responsible for the individual cus- afternoon the Supervisory Boards of the two tomers.” banks would meet to resolve on the merger. The general meetings of the two banks The next day, the news made front-page passed resolutions approving the merger of headlines. Deutsche Bank and Disconto-Gesellschaft The customers’ possible reaction did give on October 29, 1929; a contract of four rise for some concern.