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12/19/2012 03:08 PM

A Reputation in Ruin

Deutsche Bank Slides into a Swamp of Scandal

Deutsche Bank was once Germany's proudest financial institution. Now, though, the giant is facing myriad investigations, legal troubles, scandals and accusations of malfeasance. Its current leadership has pledged a new beginning, but several executives are tainted as well. By SPIEGEL Staff

At 9 a.m. last Wednesday, Deutsche Bank co-CEO Jürgen Fitschen was sitting in his office on the executive floor at Deutsche Bank headquarters in Frankfurt. Fitschen, who has led Germany's largest bank together with Anshu Jain since May, was in a cheerful mood. That, though, was about to change. He didn't know yet what was happening on the ground floor of the twin, glass towers.

Some 20 police cars were parked in front of the entrance and later, a helicopter circled overhead, according to accounts given by bank employees. Hundreds of government officials crowded into the building while armed police officers secured the lobby.

When Fitschen heard that officials from the public prosecutor's office were in the building, he immediately wondered what the reason for the visit might be. But he didn't have long to think about it. Investigators were quick to make the trip to the top floors of the building where they informed the co-CEO of the reason for their visit.

Fitschen was told that he was under investigation for "severe tax evasion." He is said to have signed an erroneous tax declaration relating to value added taxes. The authorities searched Fitschen's office, sparsely furnished with a few pieces of furniture and a handful of exotic works of art, and then they left.

The raid was unprecedented. No German multinational had ever been subjected to quite thesame level of public humiliation before. The Frankfurt public prosecutor's office had organized its raid on Deutsche Bank as though it were an organized crime sting. Five executives were arrested, several of them have been held in pre-trial detention since. One was allowed to go home for health reasons and the tabloid Bild reported on Wednesday that another has now been released as well.

Like a Criminal Gang

On one hand, the raid was a show of strength. But on the other, it exposed the public prosecutor's weakness in the face of Deutsche Bank, one of the world's largest financial institutions. The bank has long been an absolute symbol of the German economy, one that shaped much of the economic activity in the country and whose advice was in demand by those at the highest levels of government. Yet it was being treated like a criminal gang.

The bank stands accused of tax evasion in conjunction with the trading of emissions certificates, but also of failure to report money laundering and of obstruction of justice -- hardly trifling matters, in other words. Nevertheless, the severity of the authorities' approach comes as a surprise, suggesting that the judiciary might be losing patience with Deutsche Bank. Yet the case is also notable for the persons involved: In addition to co-CEO Fitschen, Chief Financial Officer Stefan Krause and two executive board members are likewise among the accused.

Fitschen's mood last Wednesday quickly moved from cheerful to outraged. He grabbed his phone and called Volker Bouffier, the governor of the state of Hesse, where Frankfurt is located, and demanded an explanation for the massive deployment of law enforcement officials. He told Bouffier that such a raid would have a devastating impact on the image of the bank. Images of armed police entering the lobby doesn't exactly make it easier for the bank to recruit the best employees overseas, Fitschen said.

Bouffier remained calm and reacted coolly to Fitschen's words. The politician, a member of Chancellor Angela Merkel's center-right Christian Democratic Union, says merely that it was up to the public prosecutor's office to determine the scope and details of such efforts, and that he could not intervene.

Internally, Fitschen made no secret of his lack of understanding for the massive police presence. When speaking publicly, however, he toned down his rhetoric, saying: "I feel that some aspects of their course of action are excessive."

Gambling Away Trust

It's a bitter irony that Fitschen, of all people, is now under investigation. A native of northern Germany, he ran the bank's corporate banking division for many years, and he is viewed as a respectable, classic German banker, one who represents Deutsche Bank's traditional virtues. This reputation is precisely why the supervisory board made him co-CEO with Jain, who had led the bank's investment banking operations. The board was unwilling to entrust management of a bank with more than 100,000 employees in over 70 countries, and with more than 20 million customers, entirely to Jain.

Together, the duo was to regain what Deutsche Bank had gambled away in the years since the financial crisis: the trust of customers and of the public.

Years ago, the bank used the slogan "Everything starts with trust" in its advertising. If this is true, then it can also be argued that lost trust is the beginning of the end. And the recent slew of scandalous headlines emanating from Deutsche Bank suggests that ground is being lost.

Indeed, since Jain and Fitschen took office in June, hardly a month has gone by -- at times, hardly a week -- without new accusations against the scandal-plagued bank becoming public. And armies of attorneys are now dealing with the many trials and investigations currently pending -- legal proceedings which present a financial risk to the bank which almost certainly amounts to several billion euros.

Last week's tax evasion raid isn't even the most recent bank headline. Last Friday, a Munich court ruled that Deutsche Bank would have to pay damages to the heirs of the late media mogul Leo Kirch. The bank, the court found, was instrumental in the 2002 bankruptcy of the Kirch empire and might be forced to pay over €1 billion euros in recompense.

In addition, the company has been accused of involvement in the LIBOR affair, which saw several international banks collude to manipulate the key global interest rate. And Deutsche Bank is under investigation for having manipulated its books to hide liabilities so as to avoid having to be bailed out by the German government during the height of the financial crisis. It is also involved in myriad lawsuits relating to its treatment of investors during the crisis.

'A New Chapter'

Dealing with all the scandals costs the bank money, effort and credibility, at a time when Deutsche Bank is in worse shape than it's been in a long time. Profits are coming under pressure, and lawmakers are threatening to impose stricter regulation on banks. Peer Steinbrück, the center-left Social Democratic Party (SPD) candidate for the Chancellery, is even threatening to split up Deutsche Bank.

In their effort to stop this decline, Jain and Fitschen prescribed a drastic change in the bank's corporate culture when they took office last summer. For months, they have been proclaiming the new Deutsche Bank's message everywhere, a message that promises nothing short of a renewal. From now on, Deutsche Bank will never lose sight of its customers and will no longer pursue any deal that can make it money.

"We have opened a new chapter in the development of our bank," Supervisory Board Chairman Paul Achleitner wrote in a letter to employees in late June. He called for the cultural change needed to "reestablish the bank's reputation as the cornerstone of a modern society."

The letter, unfortunately, coincided with allegations that employees of Deutsche Bank and other large multi-national financial institutions had manipulated the LIBOR key interest rate.

Bank representatives stress that the LIBOR scandal and other such transgressions are all legacies from a different era. But each new scandal raises the question as to whether Fitschen and Jain are not in fact part of that past era -- and whether it isn't time for Deutsche Bank to embark on yet another new beginning.

Fitschen Fights for His Reputation

The co-CEO is taking a combative approach. "We have nothing to hide. It's also in our interest to fully clear up these issues," he said in comments on last week's tax evasion raid. "We will continue to cooperate with the prosecution; these problems can be solved."

It is somewhat accidental that Fitschen has become caught in the clutches of the judiciary. Fitschen signed the tax return in question, for the year 2009, only because then-CEO Joseph Ackemann was out of the office. It is a signature that could prove disastrous for him. Investigators believe that the tax return was incorrect because bank employees were engaged in an effort to evade taxes.

According to the allegations, the bank assisted several dubious companies trade large numbers of greenhouse gas emissions certificates in 2009 and 2010, and then fraudulently used the deals to obtain tax refunds. This VAT carousel, in which large sums were rapidly handed from one shell company to the next, made even the investigators dizzy.

The construct was possible in the first place because trade in the certificates across European borders is tax-exempt -- but sales within German borders are not tax-exempt. It was practically an invitation to abuse. A company in Germany would buy emissions certificates from a foreign partner without paying VAT. The crooks would then pass the certificates through several companies to cover their tracks. Finally, the last company would sell the emissions certificates out of the country and have the German treasury reimburse it for the VAT it claimed to have paid when purchasing the certificates in Germany.

As documents from the public prosecutor's office indicate, the fraudulent company found a willing partner in Deutsche Bank. Between September 2009 and February 2010, the lender acquired large numbers of emissions certificates from four suspicious companies, and was thus able to book pre-tax earnings on the deal of €211 million.

Dubious Companies

Because the investment bank sees itself as one of the world's leading trading companies for all manner of securities, it welcomes anything that generates a profit. Still, the HMRC, the British taxation and customs agency, had warned the bank in late 2009 that 85 to 95 percent of emissions certificates in circulation were "associated with fraudulent criminal activities." A special commission of the Frankfurt general public prosecutor's office, named after the Germanic god Odin, was also investigating the dealings at the time.

Odin's hammer struck quickly. In the spring of 2010, the investigators smashed a network of dubious trading companies and in the course of a raid they also searched Deutsche Bank premises in Germany and abroad. At that point, five Deutsche Bank employees suspected of being involved in the carousel were arrested.

They were not the same bankers arrested last Wednesday. This time, they came armed with more personnel and new allegations. They were interested in senior employees in the department responsible for combating money laundering. Authorities believe they had approved fraudulent trading activities against their better judgment. The investigation was also focused on employees in the IT and legal departments, who were accused of having concealed information prosecutors had requested from the bank after the first raid in 2010.

This time the investigators brought along five arrest warrants, and they took two employees from the IT department, two from the legal department and one money laundering expert into custody. With the exception of one of the five, who was able to demonstrate medical reasons for not being detained, they all remained in custody after the arraignment. This time the investigators wanted to be completely certain that nothing would slip through the cracks.

They also followed up on information about a tipster who had allegedly warned the certificate traders at Deutsche Bank prior to the first visit by law enforcement on April 28, 2010. At 10:37 p.m. on April 27, a bank employee who handled corporate clients and had been involved in emissions trading, received a phone call from his boss to warn him of the raid that was going to happen the next day. "I just wanted to let you know that we have reliable information to the effect that the public prosecutor's office could show up tomorrow," the then manager of a sales territory told his subordinate.

A Tip-Off

Investigators had tapped the phone lines of both bank employees and recorded the conversation, in which the manager suggested that the bank apparently had more than one source. He told his subordinate that the bank had in fact received the information about the upcoming search through five different channels.

In the conversation, the two employees discussed the fact that it was very important to keep the investigators from knowing that the bank had been forewarned. The senior employee advised his subordinate to do everything possible to avoid creating the impression that bank personnel had been prepared for the issue or had quickly taken preventive measures.

The investigators would probably ask for the computer drive and make a copy of it, the supervisor continued. He also noted that it was important that the bank always have a lawyer present who was familiar with the issues at hand. Aside from that, he said, it was important not to seem self-conscious.

Apparently the tip-off prior to the first raid only made the investigators more determined. They also felt deceived by Deutsche Bank, which they accused of not having cooperated as meticulously as it had claimed, following the first raid.

In late April 2010, the Federal Office of Criminal Investigation and Deutsche Bank lawyers had prepared a written list of the information the bank was to provide the authorities concerning the VAT carousel scheme. It included emails, documents, tables and presentations associated with 40 bank employees.

In late summer 2010, the financial institution supplied the authorities with several hard drives, containing a terabyte of data. Then the bank heard nothing more about the case for almost two years. Then, in May 2012, the public prosecutor's office contacted the bank and reproached it for providing incomplete data to authorities in 2010. The bank subsequently delivered some of the missing information. According to Deutsche Bank, some of the requested information could no longer be reconstructed after two years, especially as some of the data had been outsourced to Siemens and IBM. The public prosecutor's office, however, believes the bank could have provided all of the data.

It also accuses the bank of deliberately delaying and not fully safeguarded some material, thus allowing employees access to it and, for example, deleting emails. According to the authorities, some 20,000 items were deleted, and the bank supplied no emails at all relating to nine employees on the list. In addition, according to the Frankfurt public prosecutor's office, the bank, contrary to its assurances, opened emails in all of the email accounts before they were passed on to investigators.

Deutsche Bank Cooperation?

Still, investigators are also to blame for some of the problems they had with processing the data. "They were literally drowning in a sea of information," says an insider.

Multiple conversations between an attorney hired by the bank and investigators also didn't help clear up the differences. On the contrary, the public prosecutor's office accuses the bank of using the attorney to obfuscate the reasons for the data's incompleteness. Ultimately, the investigators had enough and they staged last week's raid.

Fitschen was perplexed as prosecutors stood before him last Wednesday and read out the accusations against him and his CFO. For six months in 2010, the bank had commissioned legal firm Clifford Chance to determine whether its employees were guilty of misconduct in conjunction with emissions certificate trading. The preliminary result of the appraisal was that at worst, the employees could be blamed of minor negligence.

It was that conclusion which led Deutsche Bank to hand in the tax return in question. Still, the bank stressed the tax return was preliminary, pending an investigation into the fraudulent companies involved in the alleged scheme. When prosecutors filed charges against those companies in the summer of 2011, Deutsche Bank amended its tax return accordingly. "Unlike the public prosecutor's office, Deutsche Bank believes that this correction was made in a timely manner," the bank stated.

Prosecutors say the bank waited too long to amend the return. After making initial inquiries, investigators concluded that Deutsche Bank was deeply entangled in the fraudulent activities, and that it must have known this in 2009.

Those responsible should "at least have been able to recognize that they were involved in fraudulent dealings," a senior tax investigator with the Frankfurt Tax Office noted in an internal memo in late 2009. After all, he wrote, the emissions certificates had regularly been offered to the bank at below market prices -- lower than prices on the European Energy Exchange. Any reputable seller would have sold the certificates for the better price available on the exchange instead of offering them to the bank for less.

Easy Access to Malfeasance

By just a few weeks later, authorities had gathered so much incriminating material that the investigation was formally expanded to include "officials at Deutsche Bank AG." Thomas Gonder, the chief prosecutor in charge of the investigation, concluded that the bank had engaged in "objective supporting activities," and that some bank employees had very clearly provided "deliberate assistance" to tax evasion.

By this point, investigators had found nothing that the bank's own internal investigations couldn't have readily uncovered a few months later. Some of the companies involved in the VAT carousel scheme used accounts with Deutsche Bank to settle their transactions. As such, investigators believe that the suspicious activity should have been obvious, particularly as Deutsche Bank had easy access to the accounts in question.

There was, for example, the newly founded company Lösungen 360 GmbH, which developed into one of the bank's key trading partners in the emissions certificate trade within just a few weeks. It repeatedly offered the bank certificates at bargain basement prices.

In August 2009, the bank transferred more than €13 million to the company's account in payment for the certificates. Soon afterwards, almost all of the money had been transferred out of the account, headed for London. There was literally nothing left in the account to pay the VAT, which the suppliers of the certificates should have paid. Nevertheless, the bank claimed about €2.5 million on its VAT return for reimbursement of the tax.

On another occasion, Deutsche Bank received certificates for 30,000 tons of CO2 from a small business called Shafiq Handelsgesellschaft, which, according to investigators, had "operated a snack bar in Heidelberg" until then. This seemed a little too suspect to the bank, so it decided to return the certificates. Soon afterwards, however, the same certificates were offered to the bank once again, this time through Lösungen 360 GmbH, and they were accepted without question.

To the investigators, it seemed "inconceivable" that Germany's largest financial institution was doing deals worth millions with fly-by-night companies whose reputability and credibility it had hardly verified at all. Had it bothered to check, the bank would have undoubtedly learned that its most important certificate suppliers had neither references nor their own office space. In some cases, they didn't even have managing directors residing in Germany, against whom civil suits could be filed.

Chief investigator Thomas Gonder noted in January 2010 that Deutsche Bank should have become suspicious. Not only was the provenance of the companies dubious, but it was also unclear how they were able to offer Deutsche Bank emissions certificates worth amounts in the triple-digit millions. "They also must have been aware of the fraudulent nature of the transactions," Gonder wrote of Deutsche Bank.

The bank counters that it had monitoring procedures that were considered suitable at the time, the purpose being to ensure that the bank was only dealing with clean customers. Deutsche Bank also notes that it turned away some customers.

Anshu Jain's Toxic Legacies

Though Fitschen is the target of the current investigation, he had nothing to do with the past deals. They fell within the jurisdiction of his current co-CEO Anshu Jain, like so many toxic legacies from the recent past.

Jain, a native of India, expanded Deutsche Bank's investment banking arm in London, turning it into an institution in the world of fast money. He was determined to make Deutsche Bank a key player in the industry's big leagues. And he succeeded, but at what price?

In its investigative report on the causes of the financial crisis, the United States Senate singles out only two banks whose dealings with toxic securities it believes played a "key role in the financial crisis": Goldman Sachs and Deutsche Bank.

These questionable transactions are increasingly coming home to roost. The Frankfurt bank faces multiple lawsuits in the United States, brought by a Dutch pension fund, insurances companies and other banks. Some want their invested money back, while others are suing for damages. Here too the bank could be looking at billions in liabilities.

The charges are always the same, and the word "fraud" appears almost everywhere: The bank stands accused of lying, swindling and cheating in conjunction with billions in real estate loan transactions. It is said to have cheated its customers while lining its own pockets. And it stands accused of having gambled more recklessly and exhibited less moral responsibility than many other financial institutions.

More and more new lawsuits are being filed against the Frankfurt bank, including those brought by many US citizens who lost their homes. A number of district attorneys, as well as the Securities and Exchange Commission (SEC), have launched investigations.

Considerable Share of the Blame

This summer, a company headquartered in Ireland filed a lawsuit against Deutsche Bank in a court in New York. The company, Sealink Funding, accuses the bank of fraud. The case is especially interesting, because the eastern German state of Saxony is ultimately behind the lawsuit. German taxpayer money is at stake, as is one of the biggest German scandals in the financial crisis: the near bankruptcy of Sachsen LB, the savings bank partly owned by Saxony. According to the complaint, Deutsche Bank bears a considerable share of the blame for the disaster.

In the years before the financial crisis, Sachsen LB, hoping to become a big player in the market for mortgage-backed securities, established a subsidiary in Ireland. The consequences were catastrophic, and in the end the bank lost billions, bank executives were sued and politicians were driven out of office. In late 2007, Sachsen LB had to be rescued through an emergency sale to another state-owned bank, Landesbank Baden-Württemberg. But the toxic securities that had triggered the drama in the first place were excluded from the deal and spun off into a company for which the government is now liable: Sealink.

The state of Saxony is still liable for up to €2.75 billion. So far more than €400 million in guarantee payments have come due. In the first nine months of 2012 alone, the state had to reimburse Sealink for €150 million in losses.

Sealink's complaint now discloses the source of a substantial portion of the securities that brought down Sachsen LB: Deutsche Bank. The Frankfurt bank sold Sachsen LB's special-purpose vehicles about €960 million in residential mortgage-backed securities in 2006 and 2007 alone. The decision to invest in the securities was "made to a substantial degree because of the role of Deutsche Bank," according to the bank. In other words, the investors were confident that the securities were sound, because Germany's largest bank was involved.

In reality, the securities were "of poor quality, and Deutsche Bank knew it." Even worse, it intentionally "created a false impression." The bank's behavior was "blatant fraud."

A Disgruntled Former Employee

These are some of the detailed accusations in the roughly 140-page complaint, which describes how Deutsche Bank allegedly cheated investors at Sachsen LB. According to the document, all of the securities are nothing but "junk" today, the losses are "substantial" and the culprits are a number of major banks, which are also being sued, along with Deutsche Bank.

For these reasons, the complaint continues, the transactions should now be "reversed," meaning that Deutsche Bank should pay back hundreds of millions of dollars. The lender rejects the accusations. "Deutsche Bank considers the complaint to be unfounded and will defend itself with all legal means at its disposal," the bank said in a statement.

As similar cases and new accusations continue to surface, it appears that the past is catching up. A few days ago, former employee Eric Ben-Artzi publicly accused the bank of having improperly accounted for complex derivative transactions during the financial crisis, thereby avoiding or covering up losses of at least $4 billion.

The case has been before the SEC for two years now, but the financial regulator has yet to comment on it. If a penalty is imposed on Deutsche Bank, Ben-Artzi stands to receive a substantial reward as a whistleblower. Deutsche Bank energetically rejects the accusations and has hired an outside law firm and accounting firm to look into the matter. The bank also points out that BaFin, the German financial regulator, had no objections to its accounting practices.

But Ben-Artzi is sticking to his guns. He has proposed that he present his arguments and calculations to the Deutsche Bank supervisory board at its next meeting. "Dr. Ben-Artzi believes that the member of the supervisory board have not yet received an accurate and complete overview of all facts and legal aspect," says Ben-Artzi's attorney, Jordan Thomas.

Huge LIBOR Fine

Opinions differ within the supervisory board on Ben-Artzi's offer. But insiders say that Supervisory Board Chairman Achleitner has no intention of once again giving Ben-Artzi a platform for his accusations, which he feels are unfounded.

Much depends on the supervisory board at the moment. Achleitner was the CFO at insurance giant Allianz, and before that he headed the German branch of Goldman Sachs. He knows the industry, and yet he is untainted by the questionable deals of the past. His job is to determine what exactly the bank and its leadership have done wrong.

In the LIBOR case, Achleitner, with a view toward the role of management, has already drawn his conclusions. Worldwide financial transactions worth trillions of dollars hinge on the LIBOR interest rates, which are compiled using information provided by large commercial banks to the British Bankers' Association. A cartel of traders from a large number of banks, including Deutsche Bank, allegedly manipulated these interest rates for their own benefit. The EURIBOR interest rates, the counterpart to LIBOR in the euro zone, were also reportedly the subject of manipulation attempts.

If Deutsche Bank is slapped with fines similar to those imposed on its competitors, it will be expensive. This summer, Barclays paid $468 million to settle its dispute with British and American authorities. And the major Swiss bank UBS was fined $1.5 billion on Wednesday for its role, even though it cooperated with authorities at a very early juncture and, in return, was afforded something of a star-witness status by some regulators.

Deutsche Bank enjoys a similar status with the European Commission, and yet both US and British financial regulators are investigating the Frankfurt bank. BaFin is nearing the end of a special audit and expects to analyze its results this spring.

It remains unclear whether Jain or another member of top management will come away from the scandal unscathed. The LIBOR rates were determined in the global markets division, which Jain formerly headed. Achleitner has stated that current and former executive board members were not involved. BaFin hasn't stated its position yet.

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

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