Handelsblatt Explains

Why Deutsche Bank is becoming more German

From boastful to sly to cautious, Deutsche Bank's last three CEOs. Source: dpa Picture Alliance, Bloomberg, Getty Images [M]

For several years it was one of Deutsche Bank’s most awkward rituals. Anshu Jain, an Indian-born British citizen who was co-CEO from 2012 to 2015, would address shareholders at the annual general meeting in English, but with his microphone switched off so the speech could be simultaneously translated and broadcast for the German-speaking crowd in Frankfurt.

For critics, Mr. Jain’s tenure was as a sign of just how far Germany’s largest bank had drifted away from its homeland. The error was half-corrected in July 2015 when another British-born CEO took the helm. John Cryan, at least, spoke German. Three years later the bank has gone full circle: Its newest chief executive, Christian Sewing, is German through and through.

And he’s singing a very different tune. Mr. Sewing’s goal will be to finish what Mr. Cryan started: Deutsche’s focus in the coming years will be its business back home, in Germany. After more than two decades of brash foreign expansion that turned it into Europe’s largest investment bank, Deutsche is thus quietly returning to its roots.

German bankers, once notorious for their conservatism, learned to love the high life of Wall Street.

Deutsche Bank was never meant to be a purely domestic German bank. From its founding in Berlin nearly 150 years ago, its mission was to finance German exporters and help them expand abroad. At the time, this financing was dominated by British merchant banks, and Deutsche wanted to challenge the Anglo-Saxons. Of its first five branches, three were located abroad – in Yokohama, Shanghai and London.

Deutsche Bank’s fortunes subsequently rose and fell with the country itself. Before the First World War, as Germany’s power grew, so did Deutsche. But then two world wars nearly destroyed the bank. Like many German firms, it was complicit during the Nazi years, taking over rivals in occupied territories and helping Hitler’s regime expropriate more than 350 Jewish businesses. Because of those Nazi ties it was disbanded after the war – nationalized in eastern Germany and broken into 10 distinct pieces by the Allies in the west.

But like Germany, the bank quickly rose out of the ashes. By 1957 Deutsche had convinced the Allies and the West German government that it should become a single bank again, based in Frankfurt. As such it played a crucial role in Germany’s “economic miracle,” taking stakes in, and seats on the supervisory boards of, some hundred German exporters. That web of relationships became known as Deutschland AG (or “Germany Inc.”).

But in the 1970s Deutsche began straying from its roots. New and complex investment-banking products became fashionable, and Deutsche wanted a piece of that Wall-Street action. So it opened its first post-war foreign branch in London in 1976 and a branch in New York three years later. It bought Britain’s Morgan Grenfell in 1989, and America’s scandal-prone Bankers Trust in 1999.

In those years German bankers, once notorious for their conservatism, learned to love the high life of Wall Street. The embodiment of that Zeitgeist was Josef Ackermann, a flamboyant Swiss banker who was CEO of Deutsche from 2002 to 2012. Mr. Ackermann became infamous for promising that the bank would make a 25-percent return on investment, an outrageous boast. In another act of hubris in 2004, he flashed a victory sign at the start of Germany’s biggest-ever corporate trial (he was acquitted two years later).

Former Deutsche Bank CEO Josef Ackermann's boastful victory sign at the start of a corporate trial turned many Germans off of Deutsche Bank. Picture Source: AP

Deutsche’s excesses and foreign adventures continued even after the 2008 financial crisis and into the reign of Anshu Jain, but its sins would soon come back to haunt it. Deutsche has agreed to pay nearly €15 billion in fines and settlements for legal wrongdoing since 2012. Its punishments included a $2.5-billion fine for manipulating the interbank interest rate called LIBOR and another $7.2 billion for hawking dubious mortgage-backed securities in the American housing market. The bank was repeatedly criticized for not cooperating with authorities. Amazingly, Deutsche’s traders in London and Moscow still kept up a Russian money-laundering scheme well into 2014. All this ultimately cost Mr. Jain his job.

Under Mr. Cryan, who was known as a crisis-manager in previous jobs, Deutsche began to make a break with this recent past, cleaning up its legal troubles and erasing what Germans considered a Wall Street mentality. He may have been British, but Mr. Cryan had a German earnestness about him and came from the relatively conservative world of consulting.

The cultural shift has meant taking the bank back to its German roots and moving away from investment banking, where growing capital requirements and paper work are making profits more elusive. Mr. Cryan even accepted that the bank would shrink: Deutsche fell out of the top five in a ranking of global investment banks in 2016. That has its benefits: the lower that Deutsche slips on the list of banks considered “too big to fail,” the less cash it is required by regulators to keep in reserve.

But while he may have succeeded in making the bank less dirty, Mr. Cryan failed to make it more profitable. Three straight years of losses and a flirtation with bankruptcy last year eventually proved too much for investors. Moreover, Mr. Cryan was criticized for lacking follow-through: The investment banking arm may have been deprioritized, for example, but a decisive step to kill it or save it was lacking.

Whether Mr. Sewing can do any better, remains to be seen. The good news is that, even as it expanded abroad, Deutsche Bank always maintained a strong presence in Germany (see graphic below). In 2008 it quietly bought Postbank, a German retail lender, which now fits into the revised home-base strategy. Mr. Sewing, fittingly, is not only German but made his career on the less glamorous retail side of banking. Everything suggests that Deutsche Bank will, after 150 years, again become a deutsche bank.

18 p33 DB – Revenues by Region-01

Christopher Cermak is an editor with Handelsblatt Global in Berlin, covering primarily finance and economics. To contact the author: cermak@handelsblatt.com

This story was updated with Mr. Sewing’s appointment on April 9, 2018. An initial version of this explainer was published on May 18, 2017.

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