A Reputation in Ruin: Deutsche Bank Slides into a Swamp of Scandal
Part 4: Fear of Decline
The presumption of innocence, of course, applies in each of these cases. No employee of Deutsche Bank has been sentenced yet, and Jain is not under investigation. It's also unclear whether any of these scandals will ultimately yield anything that would hold up in court, whether fines are imposed and, if so, for what amount. Nevertheless, the large number of cases shows that the bank truly must change, a realization that Jain and Fitschen have merely announced thus far.
Actually implementing such change will become increasingly difficult with each case in which the bank's leadership is actually implicated. Jain and Fitschen constantly insist that those who don't support cultural change have no future at the bank. If necessary, they will cancel the bonuses of employees who violate the bank's principals, or even throw them out, they say. The goal of remaining one of the top players in the industry should no longer serve as an excuse to ignore ethical principles, say the bank's co-CEOs.
But can Jain and Fitschen crack down as they claim they will? The Ben-Artzi case offers an indication of how employees react when they feel they were unjustly let go. The whistleblower is attacking the bank's reputation with his accusations, while at the same time suing the bank under labor laws.
Jain and Fitschen also face another problem: What impression does it make on employees when the preachers of change become the subject of investigations themselves? "Dealing with the past makes it difficult for us to shape the future and cultural change at the rate at which we would like it to proceed," Fitschen admits. In this sense, last week's raid, which shut down the bank for hours, has symbolic value. Many bank employees feel a sense of paralysis.
Detrimental to Business
"How are people in the branches supposed to explain to their customers that the bank, to which they entrust their money, is being occupied by armed police officers because of suspicions of serious tax evasion?" an employee asks.
The headlines about investigations against the bank could be detrimental to business, at a time when banks are already finding it more difficult to make money. Only a day after the raid, Deutsche Bank warned that extraordinary items would have a "significantly negative" impact on profits in the final quarter of the year.
This, like the skirmishes with prosecutors and the parties suing the bank for damages, is also a long-term consequence of earlier excesses. Many deals are becoming more costly for banks or are being eliminated entirely, because governments have enacted new laws or, quite simply, because no one is interested in some of the financial industry's inventions anymore. That's why Fitschen and Jain are cutting thousands of jobs, combining departments and selling off old securities, hoping to reduce risk. The goal is to secure profits for the long term, but at the moment these efforts are costing the bank money.
Distribution battles erupt when a company shrinks and cuts costs. Everyone is expected to save money, including areas that have little to do with the excesses leading up to the financial crisis. And they too are affected by the loss of reputation Deutsche Bank is currently experiencing.
This explains why employees in the retail banking division are so upset about the culture of greed that the say prevailed in investment banking. "And now a new modesty is being prescribed for everyone," complains one employee representative. "But the people down in the branches weren't greedy. And the pressure to perform hasn't been reduced. On the contrary, it has gone up."
The triumvirate at the top insists that the external attacks are bringing bank employees closer together. In defending Jain and Fitschen, Supervisory Board Chairman Achleitner argues that they can promote change more effectively, precisely because they are familiar with the mistakes of the past and are personally experiencing the consequences today. But employees are divided, and even in the supervisory board there are critics who question whether Jain can be a credible messenger of change. Representatives of this faction had pinned their hopes on Fitschen and are now deeply concerned that he too has now come under investigation.
'A Fish Rots from the Head Down'
There is no doubt that the estrangement between politicians and Deutsche Bank grows with each new scandal. Commenting on the ruthless approach prosecutors took last week, Social Democratic Party Chairman Sigmar Gabriel says that it was "a really good sign that the prosecutors are conducting their investigation without regard for the reputation or rank of individuals." According to Gabriel, it's important to show banks that "they are mistaken if they believe that they are above the law."
Green Party Chairman Jürgen Trittin, who could become finance minister should the SPD and Green Party be able to oust Chancellor Merkel in next year's elections, also had harsh words for top management. "Deutsche Bank has always prided itself on not having accepted any government aid. Now the public prosecutor's office is helping it disclose possible criminal practices." According to Trittin, Fitschen and Jain have failed so far in their effort to initiate change. "A fish rots from the head down. The same thing applies to the executive floor at Deutsche Bank."
The bank is deeply resentful over the attacks from Berlin. Executives say that the same politicians who normally ask the investment bankers for help at every opportunity are now turning around and attacking them publicly. When politicians need advice on the euro crisis or debt repurchase programs for Greece, say bank officials, Deutsche Bank is indispensable. Yet now they are seeking to dismantle the bank.
"You have to ask yourself whether we in Germany still want to have a global bank that can serve German companies all over the world," says a senior executive at the bank. It's a remark that reflects the fear of the Frankfurt financial professionals -- the fear of decline.
BY MATTHIAS BARTSCH, MARTIN HESSE, ARMIN MAHLER, JÖRG SCHMITT and THOMAS SCHULZ
Translated from the German by Christopher Sultan
© SPIEGEL ONLINE 2012
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