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Deutsche Bank Towers in Frankfurt
Photo: KAI PFAFFENBACH / REUTERS
Deutsche Bank, which was founded on March 10, 1870, still managed to celebrate its 150th company anniversary.
It is uncertain whether the icon of the German financial world will still experience its 160th birthday as an independent financial institution.
To the author
Stephan-Götz Richter
is director of the Global Ideas Center and editor-in-chief of the online magazine The Globalist, Berlin.
Website "The Globalist"
Website by Stephan-Götz Richter
Twitter: @stegoeri
This finding is all the more astonishing as the time when Deutsche Bank was one of the most respected and stable banks in the world was not long ago.
In the early 1990s, the bank was so respected that there were hearings in the American Senate about what the big US banks could learn from Germany's leading financial address.
That sounds unimaginable from today's perspective.
The fact that Deutsche Bank, which was once the epitome of German solidity and reliability, has now become a synonym for scandal, suggests less a long path of mishaps than of actively committed misdeeds.
The bank was not only involved in money laundering scandals, but also in dirty business by manipulating LIBOR interest rates or granting dubious real estate loans (including to Donald Trump, when no American bank wanted to lend him more money).
In the Mercedes limousine to the secret meetings of Deutschland AG
In view of this blatant decline of the once so proud money house, the temptation is great to let malicious pleasure arise.
The fact that the traditionally posh pinstripe bankers have stumbled so badly is something that some may consider an element of compensatory justice.
But that would be just as wrong as the assumption that the world of Deutsche Bank would still be healthy today if only it hadn't made the excursion into international investment banking.
Apart from the fact that company clocks cannot really be turned back, leaving the home country thirty years ago was just as courageous as it was logical.
The boss at the time, Alfred Herrhausen, and his fellow board members had recognized that the “Germany model”, which was still very much admired by the Americans at the time, was in reality a discontinued model.
The vision of this "Germany AG" was to completely interweave the state, private sector and trade unions and to steer them cooperatively to minimize frictional losses.
The large German banks - then three in number, today at best one and a half - played the central role of coordinating the business side, the trade unions and the employee side via their share packages and the voting rights, while the state was the central mediator.
The heads of all these large institutions were a symbol of this consortium-oriented “Rhenish capitalism”.
They let their chauffeurs drive them to often secret meetings in Mercedes limousines, at which smoldering conflicts were successfully worked out over dinner or, if necessary, over the weekend.
As long as this game worked, Germany was a relative miracle of macroeconomic productivity.
On closer inspection, this success was based less on clubbing than on the fact that there was an enormous pull in demand after the Second World War, which was reflected in the dynamic reconstruction of the Federal Republic.
Gambled away with the re-invention
That, from today's perspective, Deutsche Bank was unable to find a successful path for itself, despite the correct business field and economic analysis at the time, is tragic in several respects.
First, it applies to the fact that entrepreneurial courage to reinvent itself has not been rewarded.
Second, this applies to the fact that Deutsche Bank gambled away with its reinvention and has had such a scandalous development since the late 1990s.
That is not a good sign for the rest of the German economy.
The proverbial case of Deutsche Bank shows how much - apart from correctly defining the corporate strategy - successful implementation is crucial.
In addition to these mainly economic facts, there is a third factor from an overall economic perspective that the German automotive industry is facing a re-invention task in the transition from combustion engines to post-fossil drives, the scope of which is in no way inferior to the transformation of Deutsche Bank.
With the piquant difference that, in contrast to the icons of the automotive industry such as VW, Daimler and BMW, Deutsche Bank did not hesitate to face the impending structural change at an early stage.
The triumvirate of our automotive industry, on the other hand, is still inclined to ignore the inevitability of the transformation - not least thanks to the political escort - with one exception (VW).
As if the motto “postponed is not canceled” represented a sensible corporate strategy.
But how can it be explained that the executive suite of Deutsche Bank in the times of Alfred Herrhausen (and afterwards) correctly recognized the new strategic signs of the times, but the bank is now only a dwarf in the international financial world?
Because of its consumptive market value, it no longer even ranks among the top 60 banks in the world.
Although Germany continues to have the largest economy in Europe, Deutsche Bank itself tends to fail in Europe.
But that is not the only problem.
Because of its frequent tactical adjustment maneuvers on the market, the bank's image has meanwhile been so battered that its original “core capital”, namely its close contacts to leading German industrial groups in all conceivable sectors, is being used less and less.
Instead, these corporations use international banks that are not only more potent and competent in the markets, but also more reputable in the meantime.
An incredible reversal of roles
Evidence of the self-mutilation of Deutsche Bank is the fact that German industrial circles are concerned about the continued existence of Germany's traditional financial top address.
The considerations in this regard even went so far that, in defensive self-interest, it was considered to have to give Deutsche Bank a financial hand in order to secure its independence.
Certainly the fact that Germany is “overbanked” also plays a role in the sagging of Deutsche Bank, ie that there are too many financial institutions, especially in the savings banks and Volksbanks.
This reduces the economies of scale that are important in the financial business and depresses profit margins.
But that is not enough to explain Deutsche Bank's business difficulties.
The ailing, because overloaded, structure of the German financial system had already been cited by the management of Deutsche Bank as a factor in the early 1990s to break new ground and to rely on international investment banking as a new source of growth and profit.
It is astonishing that in the past three decades there has been virtually no change in the overloading of the German financial structure, especially compared to most European partner countries.
There is an obvious reason for this.
All the savings banks and Volksbanks offer many ex-politicians an extra income even after their parliamentary or administrative work in the form of a mandate in the countless advisory boards and even the boards of these institutions.
Deutsche Bank's operational and structural problems also had many home-made causes.
Of course, this does not refer to the decision to get into investment banking, as some people think these days.
It was right to do so.
This also applies to the drive to accelerate market entry through acquisitions - from Morgan Grenfell to Bankers Trust to a team from Merrill Lynch.
In the course of this expansion, however, there was a double cultural error - both on the part of the traditional (German) Deutschbankers and on the part of the new, non-German Deutschbankers.
Both were eager to get into the top international league as quickly as possible.
With this in mind, the battle-deciding factor of risk management, especially in investment banking, has been neglected far too much.
Too many risks were taken, which, although they brought short-term profits to the books, in the longer term, in some cases triggered the high avalanches of provisions and damages that have continued to this day.
That this came about was primarily the result of an incorrectly applied incentive structure, which was also overloaded with cultural elements.
The investment bankers bought in, mostly British and Americans, saw themselves as pure soldiers of fortune and foreign legionnaires on a German ticket.
True to the motto: By the time something goes wrong, I will definitely have financially got my private sheep dry.
And if something really burns, it “only” hits the Germans.
On top of that, not all financial experts, even if Deutsche Bank hired them for a lot of money, were really first class.
As the effort grew to penetrate as many lines of business as possible, second-rate bankers were also employed.
They were simply not good enough to get a job in the top flight - for example at Goldman Sachs, Morgan Stanley and JP Morgan.
With the acquisition of Bankers Trust in 1998, a company that, in contrast to the company name ("trust"), was better known as a gambling den, this proved to be true on a large scale.
But who should mind if Deutsche Bank was willing to pay princely?
Sure, the American and British bankers were good at promoting each other and always full of promises.
Nobody can blame them for that.
Such rattling is just part of business.
Especially since such transactions are carried out with mutual consent between adults.
Probably the most significant damage for Deutsche Bank, which resulted from its international expansion, consists in something other than “just” a badly battered reputation or the provisions for “legal problems”.
The main damage is that Deutsche Bank has been so preoccupied with itself and the problems it has created for the past quarter century that it may have missed the path to an independent, promising corporate future.
Even if Deutsche Bank finally seems to be on the mend under its current boss Christian Sewing, the crisis is so deep that even in neighboring EU countries more and more managers are asking themselves whether the Germans have somehow lost their financial gene .
In any case, banks in France, the Netherlands and Switzerland, which, like the German banks, have opted for a universal bank model, do not have so much difficulty in investment banking or asset management.
This cannot only be due to the prevailing market structures there.
Karl Marx and Deutsche Bank
In view of the decline of Deutsche Bank from a global icon to a mere national greatness, one enormous cultural achievement should not go unmentioned: the update of Karl Marx's philosophy for the 21st century.
As is well known, Marx had always spoken of the exploitation of the workers by the owners of capital.
What Marx had not foreseen was the contemporary reversal of his guiding principle - namely the systematic exploitation of the owners of capital by his own employees.
This is exactly what Deutsche Bank's investment banking division has done more diligently than in any other financial institution around the world over the past two decades.
In particular, "Anshu's Army", so named after the meanwhile sacked Indian co-boss Anshu Jain, was able to let off steam based on the total assets of Deutsche Bank.
Looking back on the systematic self-mutilation of Deutsche Bank, two things should be remembered: First, a top address in German industry threatens to fail here, although it pursued the right strategy in good time.
And secondly, in retrospect, Deutsche Bank's rolling course could be remembered as the starting point of the fundamental German economic crisis, which now threatens us on a much broader basis.
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