deutsche bank

The Return of Levelheadedness

  • Why it matters

    Why it matters

    Recent scandals cost Deutsche Bank its close connection to the government but now, under new CEO John Cryan, Germany’s largest bank is beginning to repair its relationship with the government.

  • Facts

    Facts

    • Deutsche Bank received strong support from German politicians and companies when its share price fell to record lows amid its struggle with the U.S. Justice Department over questionable mortgage deals in the past.
    • After the LIBOR manipulation scandal, Berlin began to take a more critical view of the bank, leading to tensions in the relationship between Deutsche Bank and the government.
    • As part of an effort to repair its reputation, Deutsche Bank has replaced or reassigned many top managers.
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    Audio

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John Cryan, chief executive officer of Deutsche Bank AG. Source: Jason Alden / Bloomberg

Deutsche Bank’s New Year’s reception in Berlin was always something special. As well as customers, guests at the reception include many lawmakers, creating a good opportunity to send political messages.

This year was a little different: Chief Executive Officer John Cryan used it partly for a message of thanks, after a tough few months that nearly brought the bank to its knees.

“Last September and October, you showed us how valuable our close relationship with you is,” said Mr. Cryan, a British-born banker who spoke German before several hundred guests. “At the time, many of you remained consciously on our side and supported us, both privately and publicly. We appreciate that, and we will not forget it.”

It was a new tone for Germany’s largest bank, which for much of the past two decades was far more focused on New York and London than on Berlin or Frankfurt.

It took the bank’s near-collapse to usher in that change.

Deutsche Bank's shares have recovered, and Mr. Cryan seems to have recognized he has to thank those who stood by him.

The September and October Mr. Cryan is referring to saw Deutsche Bank’s share price plunge to a record low of below €10. The turmoil came after it was leaked that the U.S. Justice Department had demanded $14 billion (€13 billion) in fines from the bank for questionable mortgage deals in the run-up to the financial crisis. It was a sum the bank would hardly have been able to pay without private or public aid. Suddenly, Germany’s largest bank found itself fending off rumors that it needed help from the government.

Deutsche Bank owes its ability to survive this dangerous phase, when liquidity was in danger of drying up, in part to support from politicians and the business community. Industry giants like BASF and Daimler issued statements of solidarity and behind the scenes helped develop a plan among top companies to backstop the bank if it ran into trouble. The German Finance Ministry stressed that it expected the U.S. case to end with “a fair outcome, achieved on the basis of equal treatment.”

In the end the ministry was proven partly right – the two parties settled on a reduced fine of $7.2 billion in January, a tremendous sum but still half the initial amount feared. Deutsche Bank’s shares have recovered, and Mr. Cryan seems to have recognized he has to thank those who stood by him.

In the past, Deutsche Bank’s CEOs enjoyed the status of being practically informal government advisers, a fact openly celebrated by Mr. Cryan’s predecessor Josef Ackermann. But the bank never really relished the role: Its own focus had long shifted to London and New York, where it had been busy building a global investment bank ever since the 1990s.

Today, many scandals later, Berlin is paying closer attention to what Frankfurt’s financial managers are up to. “There has certainly been a cultural cooling off,” said government officials in Berlin.

The manipulation of the LIBOR interest rate was a turning point of sorts. Deutsche Bank was also involved and Berlin has taken a more critical view of the bank ever since. Such a tense relationship with lawmakers is a serious problem for a company whose industry is being fundamentally re-regulated.

Not surprisingly, the bank has worked hard to repair its reputation, especially since Mr. Cryan came into office. At the management level below the board, the bank has replaced half of the executives in the last year, and another 20 percent were reassigned. The number of money-laundering experts is expected to increase dramatically. The fact that the board has gone without bonuses for two years in a row also sends a message. “We wanted to make it clear that we only want performance-based remuneration if employees and shareholders participate in our success to a reasonable degree,” Mr. Cryan said.

There have been some improvements in the overall atmosphere at Deutsche Bank since then, but no one makes a show of it. “Deutsche Bank is keeping a much lower profile in Berlin now. But one shouldn’t draw any wrong conclusions from that,” said Gerhard Schick, the fiscal policy spokesman of the Green Party. “Communication channels with key individuals are still open. It’s just that both sides feel more comfortable when this isn’t that readily perceived by the public,” he said.

Chancellor Angela Merkel sees Mr. Cryan in the “very rare meetings” that are customary between the chancellor and the heads of the biggest German corporations, said officials in Berlin. Although Mr. Cryan has made an appearance at the finance ministry, there was no face-to-face meeting between him and Finance Minister Wolfgang Schäuble on the sidelines of the fall meeting of the International Monetary Fund.

This dispassionate approach is just fine for Deutsche Bank. “We are very interested in a constructive and factual dialogue with policymakers. We want to convince them with factual arguments,” Sylvie Matherat, head of regulatory affairs, told Handelsblatt.

In the assessment of lawmakers, that approach has succeeded. When it comes to the equity capital reforms referred to as Basel III, Deutsche Bank was “as active as ever,” said a lawmaker with the ruling coalition government. In fact, the bank was even too successful for fiscal policy expert Mr. Schick. He is critical of the coalition for exaggerating its role as a stakeholder for banks, including Deutsche Bank.

 

Martin Greive is a correspondent for Handelsblatt based in Berlin. Yasmin Osman covers finance with Handelsblatt’s banking team in Frankfurt. To contact the authors: osman@handelsblatt.comgreive@handelsblatt.com

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