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.