The Deutsche Bank Downfall How a Pillar of German Banking Lost Its Way
Part 8: Not a Nice Place
VIII. Not a Nice Place
Deutsche Bank wanted to come home. John Cryan destroyed half of its market value. It was the end of self-deception.
Deutsche Bank's recent history gives rise to numerous questions beginning with "could," "would" or "might." Would the bank's path have been different had it merged with Dresdner Bank in 2000? Might things have turned out differently if the investment division had been set up as a separate bank alongside the classical institution under a holding company? Could one not already see in 2002 that Wall Street is on a constant cycle of boom and bust?
In the crisis before the crisis, the one in 2002, 50,000 bankers lost their jobs on Wall Street and a further 25,000 became unemployed in London. Merrill Lynch and Goldman Sachs both downsized. But Deutsche? Deutsche Bank stepped on the gas. It made fewer cuts than its competitors because it hoped to increase its market share on the next upswing. And it worked. Josef Ackermann was celebrated as a genius -- until around 2007 or 2008.
Deutsche Bank didn't learn much from the global financial crisis. Ackermann is fond of reciting numbers that allegedly prove he drew tough consequences from the crisis, but decisive changes were not made. The investment in, and the step-by-step takeover of, Postbank may have been an attempt to broaden the bank's foundation back home, but management in Frankfurt never seemed particularly invested in the acquisition. Ackermann made minor corrections here and there to the bank's overarching strategy, but refrained from far-reaching changes. Unlike its competitors, Deutsche didn't just dance for as long as the music played, it continued until 2012, until Ackermann's departure, and even further, once the greatest of the investment bankers, Anshu Jain, rose to the top. Investment banking was all he knew and all he wanted to know, and his co-CEO Jürgen Fitschen simply watched and did nothing.
It was the bank's investors who pushed Börsig, the supervisory board chair, to install Jain on the throne because they still believed that the superstar could make it rain money again. That was a mistake. Jain expanded the Group Executive Committee to 22 people to reward his acolytes -- which meant those who had presided over one scandalous deal after another were now at the top of Deutsche Bank. Why would anyone expect these investment bankers to make the necessary break with the past?
They couldn't and didn't. As more and more information came to light between the years 2012 and 2015 about the ways Deutsche Bank traders had made their billions, Jain did little to help clear things up. He instead whitewashed and dallied, while enjoying the protection of Achleitner, the supervisory chair. His co-CEO Fitschen was left to talk about culture and values to no one in particular.
But now Deutsche is getting its comeuppance for having avoided and arrogantly treated the regulators. British and American regulators seem particularly eager to go after the haughty bank from Frankfurt and partly justified the high penalties they levied on the bank by referring to the bank's insufficient cooperation. Jain, in any case, couldn't to deal with regulators, at least not German ones.
He could also no longer do what he became famous for: make money. The new head of Deutsche Bank misread the zeitgeist, thinking he knew better than all the rest. Even as competitors reduced their speculation on interest rates, currencies and derivatives, Jain continued and increased his market share -- in a market whose products nobody wanted anymore.
Deutsche Bank continued dancing -- on Wall Street and in London. It danced and danced, looking like it had lost all connection to reality and all business sense. Even today, according to a report by the Wall Street Journal, Deutsche Bank carries a debt-to-equity ratio of 24:1, while Goldman Sachs has gone down to a ratio of 9:1. And the bank is still juggling billions in derivatives, securities that are essentially bets on future developments. Its derivative portfolio represents no significant risk, says current management, but given all that has happened, investors have lost trust -- just like what happened with Lehman Brothers. If history repeats itself, Deutsche Bank would be at the center of the inferno.
How, then, will the story of Deutsche Bank continue? Will it continue? With John Cryan? He is Ackermann's polar opposite. Whereas the Swiss banker always insisted that the bank was stronger than it actually was, Cryan, who comes from the UK, is open with the bank's employees about its deficits and talks publicly about things that aren't going well. Doing so, however, has scared away customers and shareholders: Nobody wants to bring their money to a bank that seems like one of the industry's losers. Since Cryan took over as CEO, Deutsche Bank's stock price has plunged by 50 percent, at times even falling below 10 euros per share, a price last seen in the 1980s.
There are weekly reports of high-ranking managers and investors turning their backs on Deutsche Bank because of its cloudy future. It is losing market share in investment banking faster than Cryan's consolidation strategy calls for. His teams also don't give the impression that they'll be able to make much headway in Germany, the home market that has suddenly become all important. And how should they? The corporate client division is led by an American in New York. The circle, if you will, a closing: Deutsche has become an American bank trying to reconquer its erstwhile homeland from abroad.
But many bank employees are happy to see the era of self-deception come to an end and see it as an opportunity. Cryan and the bank are confronted with the same questions that presented themselves in 1994, when Deutsche turned onto a dead-end road: In what business sectors and in which markets does Deutsche Bank have a future? The answers to those questions are more difficult to find today than they were then.
The bank has lost its identity and is now tasked with identifying new goals at a time that could hardly be worse for the banking industry. Interest rates are practically non-existent, and they are likely to stay that way for some time. The European Union is at risk of disintegration and new, faster digital competitors are growing quickly. Regulators and politicians, traumatized by 2008, are keeping a watchful eye on banks, demanding higher capital reserves and limiting their room for maneuver. Investment banks of the kind that existed prior to 2008 are no longer welcome in Europe.
But what else can Deutsche Bank do? There is no doubt that it has to shrink significantly. It has to consider whether it really needs to be present in 70 countries and ask why it has more employees than ever despite having been suffering for years.
If things go well, the bank will soon be able to put the largest of the left-over legal challenges from the Ackermann era behind it, perhaps even by the end of this year. That, at least, would provide the time and the space for the formulation of a new strategy, if it's not already too late. The bank is dependent on investors and no longer master of its own fate. Survival is the goal.
If the penalties are too high and the bank brought to its knees, Germany will face a discussion that will have a significant effect on the 2017 general election. At a time when populists are dominating the political debate, a bailout of Germany's largest bank using taxpayer money would be a particularly touchy operation, to say the least. Nobody will be interested in taking the lead.
This is the bank's situation, 146 years after its founding. Once a symbol of Germany -- Germany Inc. -- and the country's financial pillar. Its managers were respected, admired as people who lived up to the country's values and expected the same of their employees.
Those times are gone. Deutsche Bank as we once knew it is dead. As one of the bank's former senior managers said, the bank stumbled into a "Darwinist niche," a place where there were no more competitors and no more enemies. And the gentlemen at the top of the company became complacent and inattentive.
The proud institution became a self-serve buffet for a few, who became fantastically rich. The bank's old leaders, insofar as there were any left, didn't have the strength anymore to put an end to the chaos. They simply watched, lazily and cowardly. And so the work of generations went down the drain. And we are told that no one is to blame.
Click on the links below for more information about DER SPIEGEL's history, how to subscribe or purchase the latest issue of the German-language edition in print or digital form or how to obtain rights to reprint SPIEGEL articles.
- Frequently Asked Questions: Everything You Need to Know about DER SPIEGEL
- Six Decades of Quality Journalism: The History of DER SPIEGEL
- A New Home in HafenCity: SPIEGEL's New Hamburg HQ
- Reprints: How To License SPIEGEL Articles