The Deutsche Bank Downfall How a Pillar of German Banking Lost Its Way

For most of its 146 years, Deutsche Bank was the embodiment of German values: reliable and safe. Now, the once-proud institution is facing the abyss. SPIEGEL tells the story of how Deutsche's 1990s rush to join the world banking elite paved the way for its own downfall.

DPA

By , Hauke Goos and


Greed, provincialism, cowardice, unfocused aggression, mania, egoism, immaturity, mendacity, incompetence, weakness, pride, blundering, decadence, arrogance, a need for admiration, naiveté: If you are looking for words that explain the fall of Deutsche Bank, you can choose freely and justifiably from among the above list.

The bank, 146 years after its founding, has become the target for all manner of pejoratives, and not just from outside observers. All of the above terms were used in interviews held during months of reporting into the causes of the downfall of Germany's largest financial institution. They popped up over the course of several hours of interviews with four Deutsche Bank CEOs, three former and one current. And they were uttered in interviews with eight additional senior bank managers and board members conducted over the course of several years, from the 1990s until today, and in meetings with captains of industry who know the bank well and during encounters with major stakeholders. More than anything, the disparaging words come up frequently in interviews with those who have worked or still work at the bank as customer service advisors, as branch managers or in positions lower down on the food chain.

What we have found in the course of these myriad interviews -- combined with the hours spent analyzing bank balance sheets, thousands of pages of files, committee meeting minutes and archive material -- is that the collapse of Deutsche Bank is the result of years, decades, of failed leadership, culminating in the complete loss of control of the company by top managers during the period between 1994 and 2012.

It is a story about how Hilmar Kopper, Rolf E. Breuer and Josef Ackermann, the leaders of Deutsche Bank during those fateful years, essentially turned over the bank to a hastily assembled group of Anglo-American investment bankers before Anshu Jain, the prince of these traders, rose to the top and spent three more years sailing the bank full-speed-ahead into the shoals.

It is also a story of how these bank heads, along with numerous other members of the management and supervisory boards, stood aside as Jain and the many other new investment banking heroes modified the staid German financial institution to serve their own purposes -- essentially looting it and robbing it of its very soul -- without leaving behind a better, stronger bank.

The subject is vast and convoluted, given the many aspects and paradoxes that come with the decline of such a large financial institution. One of those is the fact that, even as Deutsche Bank is rapidly losing value, it is still seen today as the largest systemic risk for the global finance world. Every detail in the sequence of its decline is controversial, partially because the financial world still considers it normal that nobody take responsibility for anything but themselves. All of them are most concerned with painting their own role in the best light possible and presenting the decisions they made as the only ones possible at the time.

But their claims must be examined critically. When looking back at past decisions, one can easily seem like a know-it-all, but it's just as inappropriate to fall prey to historical relativism. When a bank like Deutsche, once an icon of respectability and solidity, transforms into a caricature of "The Wolf of Wall Street," something must have gone wrong and someone must have been responsible.

And there are people who deserve blame: management board spokesmen (the bank's equivalent to a CEO before a true CEO leadership model was introduced in the 2000s), members of senior management and advisory board members over the course of several years. Their leadership failures were not primarily the result of professional incompetence, since the people involved were and are extremely well educated, often proven professionals with significant amounts of experience. The source of their mistakes lies elsewhere, in cultural factors and psychological disposition.

The German-ness of Deutsche Bank also had a significant role to play over the years. It looks as though Deutsche Bank managers wanted to free themselves from Germany's reputation for provincialism -- and went so overboard the consequences can still be felt today. Because once they successfully managed to expunge everything that was German about the bank, it suddenly seemed helpless and empty, aimless and confused.

Deutsche Bank is broken. It might be able to extract itself from the 7,800 lawsuits it is currently involved in, or it may shrink to the point that it will no longer pose a systemic risk, or it may manage to find investors to help it scrape together sufficient capital to fulfill legal requirements. In the most extreme case, it may even be bailed out by the German state. But it is broken nonetheless when compared to that which it once was: a brand, a symbol, a German icon.

It may sound strange to say that a bank needs a home as well as a strong domestic market, but Deutsche Bank's name carries weight in the world. The clichés about Germans being upstanding, efficient and competent are alive and well in Asia and America. It is an image that Deutsche Bank promulgated even after it had long since pulled up its roots -- even after senior managers had begun making clear to employees and clients alike that they found their bank's provincial origins a bit embarrassing. It was a time when their work saw them commuting between Singapore and Los Angeles, Cape Town and Beijing -- and when the needs of the global elite were more important to them than those at home.

On Thursday, John Cryan, the bank's new CEO, presented a surprisingly positive quarterly report. The bank posted a 256 million euro profit, compared to analysts' expectations of a 949 million euro loss. Even so, the bank has left behind a rubble-strewn landscape that still hasn't been cleaned up years later. And analysts are nervous. Will the situation calm down? Or will it get even worse?

But even though this week people will focus on the bank's recent failures, its decline didn't begin yesterday, or in 2007, or 2008, but as a lofty dream more than 20 years ago.

In a June 1994 meeting at the Deutsche Bank branch in Madrid, Hilmar Kopper, then Deutsche Bank chairman of the board, resolved together with a handful of senior managers to transform the Frankfurt-based concern into a globally operating investment bank. The move was intended to propel the bank upwards, but after a few good years, the slide began -- one which continues to this day.

I. Performance without Passion

A visit to Deutsche Bank's 2016 shareholders' meeting.

On the morning of May 19, 2016, Deutsche Bank investors both large and small were gathered at the Frankfurt convention center. There were grumblings that they are getting poorer by the day. The bank was still not doing well. Shareholders were streaming into the main entrances for this year's shareholders' meeting. In the back, the VIPs were driving up in sedans -- senior managers and board members. They were tasked with talking about what has been an extremely bad year.

The institution had lost 6.8 billion euros and was stuck deep in crisis which could threaten its very existence. Paul Achleitner, chairman of the supervisory board, received sarcastic applause when he took the stage, but nevertheless held a self-satisfied speech. He looked well-rested and said at the end of his speech that it was worth fighting for Deutsche Bank. For him, at least, that was undoubtedly true.

Jürgen Fitschen came up next to bid farewell -- and his speech was met with only scattered applause. For years, for decades, he had been part of the bank's senior management, working in such far-flung places as Bangkok, Tokyo, Singapore and London. Ultimately, he became co-CEO with Anshu Jain and led the bank's "cultural change" for the last four years. He always seemed like the last remaining source of respectability at the bank. On this day, though, he seemed rather colorless.

The bank's "cultural change" campaign was meant as a return to values, a reminder that the bank's history could still be inspiring, but it coincided with a flood of lawsuits and damage claims and the term "cultural change" came to be seen as a bad joke. Fitschen's speech was interrupted by jeers. One man screamed at him from the audience, but it wasn't clear what he was saying.

The meeting wouldn't make any more sense to the uninitiated. Deutsche Bank's 2015 annual report was full of enormous, inconceivable numbers. The balance sheet total was listed at 1.6 trillion, with 101,104 employees being paid at 2,790 branches in 70 countries. There were, the statement notes, 561,559 shareholders in 2015 and, on the Dec. 31, 2015 cut-off date, 1.38 billion shares on the market, of which 7.8 million were traded each day at the stock market in Frankfurt. How was it possible that such a firm was standing at the precipice?

Shareholder representatives took the stage. That moment was the highlight of their year and they strutted up to the stage before the full house. They used terms like "rat catchers" and "Augean Stables," a reference to the Fifth Labor of Hercules, which required him to shovel manure out the king's cow stalls. The angry men spoke well beyond the eight minutes they had been allotted and accused managers of having created the atmosphere that made much of the fraud possible. They said the bank had been plagued by decades of mismanagement and was in need of restructuring. They took the pay structures to task and mocked the "cultural change." Indeed, the meeting wasn't unlike several past shareholders' meetings. And then lunch arrived -- time for the stakeholders to calm themselves at beautifully laden buffets.

John Cryan, the bald-headed CEO of the bank, chaired the event. He was a better speaker than either Achleitner or Fitschen and was a calming presence. He spoke German, as the head of Deutsche Bank has always been expected to do -- and something that only one CEO, Anshu Jain, the cosmopolitan from London, refused to. At the last shareholder meeting he presided over as CEO in 2015, interpreters translated his speeches -- and it was, as all those present understood, a sign of deep contempt for that which is referred to here as "German culture."

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fish2064 10/28/2016
1.
Eight pages the all you needed was one word: GREED.
herrD 10/29/2016
2. Precisions on the assassination of Alfred Herrhausen
Strategically far-sighted, Alfred Herrhausen had proposed for quite some time a remission of debt for developing countries, especially in the year of the crash of 1987. In the eyes of his enemies (ultra neo-liberals) his proposals were absolutely unbearable. Some speculate that in view of the complex nature of the assassination, Secret Service / CIA may have been involved. All of Mr. Herrhausen’s proposals for structural changes to the Deutsche Bank as well as the idea of debt relief to third-world countries were abandoned by his successor Mr. Hilmar Kopper and belittled as “not-to-be-taken-serious” expressions of Herrhausen’s ideas.
ptl88 10/29/2016
3. Deutsche Bank
I hope Deutsche Bank survives this very dark chapter of its history and eventually prosper again as any major country needs a strong domestic bank. The whole world has changed drastically since the collapse of Soviet Union when communism stops challenging democracy. I wonder the financial engineering genius that gave us the derivative markets deserves Noble prize in Economics? Are the profits (savings) in derivatives real or perceived?
acpacker 10/30/2016
4.
A wonderfully xenophobic piece about how the upright upstanding Germans were forced into wrong-doing by the Anglo-Saxon axis of evil. Never mind that this was a German bank run by Germans. You the Germans went and hired a hired a bunch of narcissistic industrial psychopaths out of pure greed. No one made you do it. The German Board must accept full responsibility. Stop blaming other people for your mistakes, its not the first time we have observed this culture of blame. Lets have the next article on how the the Volkswagen scandal was engineered by foreigners, we realise Germans would never do anything like that.
m_nadrakas 10/30/2016
5. Globalism
Deutsche Bank is the victim of Globalism, as many companies, industries and nations have also been victims of the insidious Siren call that has for decades been heard around the world. It is time for the Nations of the world to reevaluate their own fortunes, industries, and sovereignty with an eye toward combating the dangers of Globalism. When a company, industry, or nation looses who they are -- looses their identity and their own sovereignty to outside influences then the question needs to be asked: "Is this who we are? Who we want to be?" Globalism is not the answer. Pride in ones self, and ones own nation is the answer. It does not mean hatred of others either; indeed, we can admire and respect each other...and we should do so. However, Globalism is leading to a loss of who we are, who all of us are. - Let us be proud of our past. - Let us be proud of our nations. - We have nothing to fear in doing so. Peace. ~ Nadrakas
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