ED HARRISON: Where does Deutsche Bank go now?
What does it say about what needs to happen to the financial system as a whole as it stands
right now?
DAVID ENRICH: Well, now in 2020, the bank and its executives, there's a new management
team in place, and it is scrambling to save itself really.
Last year, they seriously considered merging with Commerce Bank, which at that point, the
number two German lender and that was a merger that was being brokered by the German government
because they're trying to save these two very sick banks.
Those talks end up falling apart because people realized that merging two big sick banks together
were just going to create one very big stick bank, not one big healthy bank, which is--
ED HARRISON: That's what the Japanese did after their crisis, and that didn't work out
so well.
DAVID ENRICH: No.
That's not a recipe for success, the recipe for success is ripping off the band aid and
taking your painful medicine and getting it done with and hoping that you're doing it
at a time where you have the breathing room, I'm mixing metaphors here, but you have the
breathing room to be able to do that effectively.
Deutsche Bank did have that opportunity, didn't take advantage.
Now, it is racing to shed assets, shed employees, shed business lines, it's trying to retreat
to its German roots and be a European lender to European companies.
That means shutting down a lot of its Wall Street businesses and a lot of the businesses
in the City of London.
The bigger problem, though, there's a few problems that Deutsche Bank faces that I'm
not sure are surmountable, to be honest with you.
One of them is that they just have these still mountains of very risky derivatives and other
assets that they do not know what to do with, it's not selling them means they'll have to
recognize these huge losses that could essentially bankrupt the bank.
ED HARRISON: Is this a Bankers Trust thing, a legacy banking trust, or is that whole derivatives
culture came from that acquisition?
DAVID ENRICH: Yeah.
I was going to say it's certainly a cultural legacy.
I'm not sure it's the financial legacy.
I think that very much of Deutsche Bank's own doing, but it's certainly a cultural legacy
of having bought this derivatives crazed bank at the end of the 1990s, which was a $10 billion
deal that very quickly became a $10 billion albatross for the bank.
They've got this huge problem, this legacy problem of all of this garbage on their balance
sheet that not only is it hard to get rid of, but if they do succeed and getting rid
of it, creates a big financial hole for them.
That's problem one.
Problem two, is that it's very questionable whether they have a viable business model
going forward.
They're a German business.
The whole reason they got into Wall Street in the first place is that the German business
wasn't making any money.
It's not profitable, and partly Germany is notoriously overbank.
There's thousands of banks in Germany, serving a very frugal savings friendly customer base
of both individuals and institutions.
It's not a great place to be doing business.
There are all sorts of economic questions about Germany and Europe as well, obviously.
The business model's another problem.
The third problem, which in some ways is maybe the greatest problem, I think, is a cultural
one, which is that this is a bank with 10s of thousands of employees all over the world.
Many of those employees have been very well trained over the years to do one thing and
one thing only, which is maximize short term profit.
They are not trained to think about this from the flipping the camera angle and looking
at this from a self-preservation standpoint, they're looking at this and are compensated
for making money quickly.
If those incentives switch radically, why work at Deutsche Bank?
Last year, as I've reported on this book, I went down to Jacksonville, Florida, where
Deutsche Bank has its big compliance and anti-money laundering operations.
I spent a few days down there talking to a lot of either current employees or recently
departed employees, and just asking them, how it was doing their job?
Do they feel good about it?
What are their problems?
It was interesting.
I talked to probably 20 people, I'm guessing, and I heard one variation of the same thing
from literally every person I spoke to, which is that people felt that they were being set
up to fail by their managers and by executives of the food chain.
The reason was that they were being pushed to just churn through transactions.
They were not being encouraged or incentivized to take their time and dig deep and err on
the side of caution.
They were being incentivized to do the exact opposite of that, to clear as many transactions
as they could, as quickly as they could.
The employees viewed that as just setting them up not only to fail but setting the institution
up to fall into more money laundering problems, or bribery problems or tax fraud problems
and whatnot.
Those are the little scandals that bubble up that can really have enormous problems
for the bank in the long term, especially in the US where it's on very, very thin ice
with American regulators.
There's a foreign bank that operates in the US at the pleasure of American authorities,
and there's no guarantee that American authorities will continue to cut the bank a break at this
point.
The people in Frankfurt who are running the bank right now, they are well intentioned,
and they're working hard and I think they get it, but it's not easy to, you can't just
say okay, we are going to have a different better culture now.
We're rebooting, we're returning to our roots as a proud national iconic German bank.
Let's start over.
It doesn't work that way.
You need to get people, mid-level managers and low-level employees all the way up to
the sales and trading people on Wall Street in the City of London, you need to get them
all to change the way they're thinking about their jobs.
ED HARRISON: It's taken 30 years for them to get to that position, so it's going to
take a long time to undo that.
DAVID ENRICH: I don't know that they have the time or the capacity to succeed in doing
that.
Maybe they do, but it's definitely, it's far from a sure thing.
This isn't like one of those just like slow turnaround efforts that we know is going to
get there because they're providing something of value and it's good for the world.
This is a company operating in a very-- a highly commoditized business far from its
home markets in a really overstretched way that has had disastrous results.
You could make an argument there's not a clear reason for them to exist.
ED HARRISON: I like this last line actually.
If you were an analyst, I guess you would put a sell on Deutsche.
DAVID ENRICH: Well, the thing is their stock is down.
It's remarkable.
I haven't looked in the past couple days, but it's down about 95% from its peak.
There's not that much further down for it to go, honestly.
This is not a company that is the stock has been like riding high.
It reflects these deep existential investor doubts about its viability.