The Deutsche Bank Downfall How a Pillar of German Banking Lost Its Way
Part 6: Rules Are for Fools
VI. Rules Are for Fools
Deutsche Bank had its fingers in every pie, earning the most when its own clients are suffering. The 2000s looked like a police report.
In April 2002, the German paper Welt am Sonntag printed an interview with "exemplary banker" Friedrich Wilhelm Christians. Christians was Deutsche Bank's management board spokesman before he moved to the supervisory board in 1988. Christians was celebrating his 80th birthday a few days later and agreed to answer a few questions about the good old days and the bank's current situation.
Christians was asked if he found the high salaries and other activities of the investment bankers to be justified. "Of course not," he replied. "A bank with over 100 years of success and tradition destroys a lot with this kind of activity. It was always something special to work at Deutsche Bank. These young guys don't care. They only care about making sure that their bonuses are paid."
It was a voice from the past -- that wasn't heard in Ackermann's Executive Committee in Frankfurt. Their language was English, and many likely didn't even know who this old Christians guy was anyway.
The transformation of Deutsche Bank had largely been completed. Germany's largest commercial bank had become an Anglo-American investment bank. Before long, the British magazine Economist would, in a perceptive article, refer to Deutsche as a "giant hedge fund." The era of enormous excesses began, an era of ludicrous mistakes and of intentional and frivolous misdeeds whose legal ramifications are still eating away at Deutsche Bank's balance sheet.
The years that followed were filled with egregious activities that state agencies would later spend years examining. Starting in 2005, Deutsche Bank began selling huge quantities of dubiously structured, repeatedly reassembled and newly packaged mortgage loans.
Starting in 1999, and continuing at least until 2006, the bank engaged in deals in Libya, Iran, Burma, Syria, Cuba and North Korea, many of them suspected of having been conducted in violation of US sanctions, including money laundering.
Starting in 2003, the bank is thought to have manipulated currency trading with the help of illegal software, thus purloining money from many thousands of customers.
In 2005, Deutsche Bank hurt mid-sized companies and German municipalities by selling them derivative financial products known as Spread Ladder Swaps, which failed to bring the advertised savings, instead resulting in losses.
Starting in 2008, the bank began helping US citizens hide unreported income in Swiss bank accounts.
Starting in 2009, the bank became part of a tax avoidance scheme involving CO2 certificates.
In November 2010, Deutsche Bank traders in South Korea manipulated the country's leading stock index through the 1.6 billion euro sale of a bundle of stocks.
Starting in 2011, Deutsche Bank employees in Moscow and London helped transfer rubles worth 10 billion dollars out of Russia in daily tranches without a recognizable commercial purpose.
In 2011, Deutsche Bank was involved in the flourishing business of "Dark Pools," trading platforms that allow both buyers and sellers to remain anonymous -- but the bank was accused of having manipulated the prices of the securities to the detriment of the customers.
When several banks banded together to manipulate the Libor, the interbank interest rate, Deutsche Bank was involved.
When gold and silver prices were manipulated, Deutsche Bank came under suspicion.
All of that, and the above list is just a sampling, took place during the years Josef Ackermann was the absolute sovereign of Deutsche Bank. Did he lose oversight? Or did he allow it to happen? Did the bank's all-powerful controller lose control?
They were years when Ackermann did everything in his power to improve the bottom line, and Anshu Jain and his team delivered. It was Jain who created structures that allowed for even greater profit, but were also open to manipulation. Later, he would establish the narrative that the problems were all caused by individuals -- black sheep -- at the bank, but investigative reports compiled by state agencies have revealed Deutsche Bank's failings and trickery to be systemic and organizational in nature.
The Libor rate, for example, which is vital for businesses and savers alike, could be manipulated because the bankers involved in the calculation of the interest rate were encouraged by Anshu Jain's management team to consult with traders within the bank who had made bets on exactly this interest rate.
On the eve of the financial crisis, the bank allowed itself a particularly notable bit of treachery, one which destroyed what was left of its once unassailable reputation. It didn't just sell its customers securities whose worthlessness was already apparent to the bank's own traders, but allowed its own investment bankers to place bets on Wall Street on those securities' further loss of value -- and grab just a bit more off the top at the cost of its own customers.
Greg Lippmann, who joined Deutsche Bank in 2000, is the name of the trader who ultimately bet 5 billion dollars against his own products. His story, which has since been turned into a movie, can be read in a report on the causes of the financial crisis assembled by the US Senate. The report also contains testimony that, on three occasions in the winter of 2007, Lippmann obtained permission from Anshu Jain to continue with his extremely amoral activities. Lippmann allegedly earned $1.5 billion for the bank with such bets. It would be interesting to know if, as billions were disappearing around the world in 2008, he received a nice bonus for his efforts.