Though its name literally translates to German Bank, Deutsche Bank’s reach can be felt
far beyond Europe’s largest economy, across the world.
But now the lender, which once hoped to take on Wall Street’s biggest players, is cutting back,
with one of the most dramatic banking overhauls we’ve seen since the financial crisis.
So what is Deutsche Bank? And how did we get here?
Deutsche Bank’s story begins in Berlin in 1870, before Germany had even been established as a nation-state.
Founded by a group of private bankers, the purpose of Deutsche Bank was to facilitate trade
between Germany and the rest of the world, as well as challenge the dominance of British banks.
Deutsche Bank’s early decades were marked by rapid expansion,
helping to develop Germany’s electrical- engineering industry domestically,
while also financing business abroad like the Baghdad Railway.
Its operations soon covered Latin America, Asia and Africa, and in 1914,
the “Frankfurter Zeitung” named Deutsche Bank “the biggest bank in the world.”
However, that claim marked the end of an era, as the First World War forced Deutsche Bank
to focus on its business at home, merging with several regional banks.
World War II followed.
It was a dark period for Germany and Deutsche Bank was no exception,
complying with and sometimes benefiting from the discriminatory laws of the time.
"Nazi Germany was determined to flourish not by trading peacefully with its neighbors.
But by ruthless agression and conquest."
Deutsche Bank has since taken ‘moral responsibility’ for its actions and has contributed to the
$5.1 billion ‘Remembrance, Responsibility and Future’ fund created to compensate victims of the Nazis.
Following the war, Deutsche Bank was on the verge of ruin
and was temporarily split into several smaller banks for about a decade.
Then through the second half of the century, the company began to rebuild.
During this period, the bank benefited from the fall of the Berlin wall
and deregulation in Europe and the United States, where the free market was championed
"If you seek liberalization, tear down this wall."
By the late 1980s, it was the largest player in the German economy,
holding hefty stakes in most of the country’s biggest corporations.
But Deutsche wanted more.
Wall Street names like JPMorgan, Goldman Sachs and Merrill Lynch were expanding aggressively
and Deutsche's leadership wanted to get in on the action.
In 1994, the German government picked Goldman, not Deutsche,
to take the lead on selling Deutsche Telekom, Europe’s largest privatization to date.
Reports say this was a huge embarrassment for the CEO at the time and contributed to
the decision to reorganize as a global investment bank.
The firm acquired a number of major banks, including Morgan Grenfell in the U.K.,
Banco de Madrid in Spain and Bankers Trust in the U.S.
Deutsche Bank cemented its position as a major player on Wall Street and global banking in 2001,
when it floated on the New York Stock Exchange.
By mid-2007, the bank was valued at $81.3 billion and held $2.6 trillion in assets,
allowing Deutsche to claim the title of the world’s biggest bank by assets.
But everything came to a grinding halt mere months after this peak.
That’s of course when the global financial crisis happened.
Deutsche Bank’s share price on the New York stock exchange rose to more than $120 in 2007.
By January 2009, it had tumbled to less than $20.
It's fallen even further since.
Deutsche Bank was actually commended for successfully weathering the crisis at the time,
but it was the regulatory crackdown in the aftermath that was the real test.
After the financial crisis, regulators forced banks to run their businesses with less debt.
Deutsche Bank was required to raise more than $30 billion in equity capital
over the 10 years following the financial crisis.
The bank is worth only about half of that today.
At the same time, the demand for its products shrank, profits dwindled and a number of scandals hit.
You see, Deutsche Bank’s near-decade of rapid expansion
was focused on its investment banking division.
Its other arms, like its retail and corporate bank in Germany,
didn’t get nearly as much financing and suffered as a result.
The bank paid new staffers much more than rival banks and handed out generous bonuses.
Compliance and risk management struggled to keep up with the breakneck growth.
That might explain the number of scandals, and subsequent fines, that followed.
They include a $7.2 billion settlement with the Department of Justice
for allegedly misleading investors into buying mortgage- backed securities leading up to the financial crisis
and $2.5 billion in fines to U.S. and U.K. regulators for participating in the so-called Libor scandal,
a scheme to rig interest rates.
It’s also been slapped with hundreds of millions of dollars in penalties for allegations
of Russian money laundering and violating U.S. sanctions against Iran and other countries.
The bank has also come under scrutiny over its business relationship with U.S. President Donald Trump.
"Deutsche Bank's stock falling hard today after the bank's Frankfurt offices
were raided by almost 200 German police officers."
The most dramatic depiction of Deutsche Bank’s troubles are likely these images from the end of 2018.
Deutsche Bank’s offices were raided in connection to the investigation of two staff members
suspected of helping clients launder money.
Deutsche has gone to great lengths to turn the bank around.
It has had five CEOs since the end of the financial crisis.
"We see the progress but we are also aware that more needs to be done."
Christian Sewing, a Deutsche Bank “lifer” who took the helm in 2018,
is the latest tasked with getting the bank back on track.
The German CEO announced the “most fundamental transformation of Deutsche Bank in decades.”
The transformation includes dramatically shrinking and reorganizing its investment bank
and completely exiting its global equities business.
As a result, Deutsche Bank will lose a fifth of its workforce by 2022
and will reduce adjusted costs by a quarter.
This is the fifth strategic plan from Deutsche in just seven years, but also the most striking.
These kinds of sweeping changes signify the end of the bank’s ambitions
to compete with America’s banking titans, at least for now.
But the goal here is increasing profitability
and hopefully returning Deutsche Bank to the stable lender it used to be.
Thank you so much for watching my story on Deutsche Bank, what has surprised you the most about this bank?
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