Donald Trump, 60 Wall Street and Deutsche Bank in a mess
The erroneous notion that German banking is boring falls apart when you consider the history of Deutsche Bank, the German institution that has just lost its third chief executive – Brit John Cryan – in six years. That’s a rate of attrition at the top worthy of a struggling British football club rather than a giant of the German economy. In February, the ailing bank posted its third consecutive annual loss.
Deutsche Bank has a colourful history and menacingly its name keeps cropping up on the fringes – and even at the centre, it is speculated – of the scandal engulfing US President Donald Trump, of which more in a moment. The bank’s New York office is at 60 Wall Street.
What is Deutsche Bank?
Founded in 1870 as a trade bank, to aid German business, it opened an office in London a few years later. Opening in the City was an essential move at the time, because Victorian London was the global capital of money and German manufacturers and merchants looking for trade finance paid more to borrow at home. To expand international trade, they needed access to London to get lines of credit and value for money finance.
Today, London is still the world capital of global finance, although it shares the title with New York. Europe outside the UK has nothing that comes anywhere close in terms of rankings, capacity or access to capital. Deutsche Bank still employs more than 8,000 people in the UK.
It had a chequered history in the mid-20th century, kicking out Jewish staff and helping the Nazis, but once it had been reorganised it became a key institution in the rebuilding of Germany before expanding abroad anew. Its purchase of the British firm Morgan, Grenfell, in Big Bang era London in the 1980s, was a striking symbol of change. London had opened itself up on its journey back to global hub status – a process that began with the invention of the eurobond in 1963 in the City by a German exile Sigmund Warburg.
Just at that moment, in 1989, the Deutsche Bank CEO Alfred Herrhausen was murdered in a huge bomb blast that took out his supposedly bomb-proof car. The killers have never been identified, although there are many theories.
Deutsche Bank continued to grow in the US and Europe. In the CDO disaster in the run up to the 2008 financial crisis, Deutsche Bank was a major perpetrator, creating around $30bn of toxic junk. While the bank was spewing it out and selling it on, its own traders were betting against the garbage. Deutsche Bank featured in the eurozone crisis too, obviously. It has been a painful struggle of rebuilding since, with rivals wondering what exactly the point of it is. What’s its specialism? What’s its insight? What’s the point of Deutsche bank?
John Cryan, the Brit who was replaced earlier this week, should have stood as good a chance as anyone of answering those questions and fixing the bank. Cryan, canny and unpretentious, was one of the few prepared to speak out – in private – against RBS’s calamitous purchase in 2007 of ABN Amro, the Dutch bank full of yet more toxic assets. Cryan, then at S.G. Warburg, warned RBS’s CEO Fred Goodwin not to do what turns out to have been one of the worst deals in history. Goodwin was livid about being warned. Cryan was right. The ABN Amro deal on the eve of the crisis made RBS the biggest bank in the world at precisely the wrong moment.
As Deutsche Bank CEO, Cryan seems to have worked hard but struggled to assert himself and failed to change the culture at Deutsche Bank. Perhaps a non-German could not do it. Perhaps Germany doesn’t do modern finance well enough, when the global economy is being turned upside down by tech, or the board won’t face that Deutsche Bank needs a real rethink or a break up or both. The chairman Paul Achleitner is under pressure. He is on his fourth CEO.
There is more potential trouble ahead that looks like public relations catastrophe. The name Deutsche Bank keeps on coming up in another context, that is in the context of politics in connection to Donald Trump. It was Deutsche Bank that loaned Trump anything up to $4bn in the decades after he hit financial problems and struggled to access finance on Wall Street, where his reputation was damaged by previous dealings.
Of course, Deutsche Bank was also fined for infringements connected to Russian money-laundering. There is absolutely no connection between those two facts.
But special prosecutor Robert Mueller is reported to be interested in what Deutsche Bank did for Trump’s businesses over many years.
Deutsche Bank in New York has some very nervous people associated with it, a leading banker told me the other day. He was far from the first to mention it. If – if – this Trump/Mueller story keeps building, it seems likely that records relating to Deutsche Bank will figure prominently in the resulting constitutional and financial explosion. Colliding with history would not be the best look for a bank struggling to rebuild, but we’ll see where the Mueller investigation gets to.
The Deutsche bank story is never dull. It may yet get even more interesting.
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Iain Martin and the team make sense of the news, providing commentary and analysis on the stories that matter in politics, geopolitics, economics and culture.