Starting december tenth d. W. That sort of speculation about the financial strength of Deutsche Bank has pushed it shant prize to a record low of the top. Of. The us the Us Department of justice is seeking to impose a record fine on Deutsche Bank for misleading investors. Weve been in the headlines last year for a number of the wrong reasons and this didnt help. Journalists havent traditionally been welcome here now were allowed in to ask all the questions we want but how honest will the answers be how endangered and how dangerous is this bank really. Visitors are greeted by a globe everyone is meant to get that bank is only german in name with a global bank. Well be speaking to bankers and Financial Experts and will be looking at the figures and asking about old burdens and new risks. And. This is the management floor on the thirty sixth story high above frankfurt you can see a long way from here from the top of the well down there looks pretty small. Bank has more than one hundred thousand employees in sixty one countries its a huge company with more than Thirteen Hundred subsidiaries and assets worth one point six trillion euros. Which makes it sound like its the government you have to be told no its not that but its the german stability theyve been in it for one hundred years you can easily assume that whatever they do is right but you have to reflect that its always different people since july twenty fifteen the top dog here has been john cryan he came in to wave a whole the bank hes british rational and modest with a subtle sense of irony every tuesday the members of the board gather here frank for that thirty fourth floor but prove the crisis has been the number one issue for the bank since twenty sixteen badly performing loans fines poor share prices so i tend not to feel too much stress and i hope thats not just a surface feeling and underneath theres a lot of stress but generally. I tend to be fairly relaxed and maybe a little too logical sometimes but. I think thats part of the role. One of the new many in charge on his way to the weekly meeting Marcus Schrenker formerly the chief finance officer is now the president and co head of corporate and Investment Bank and the deputy c. E. O. This is the first time a Television Team has been allowed to film a Board Meeting the bank wants to regain trust and it needs to the combined annual salary of the people in this room is a good twenty five Million Euros thats a lot of money but much less than their predecessors got the ones who plunged the bank into the crisis the big money was yesterday todays about john you cry and hes here to clean up the bank his mandate to exude confidence and saving on the right is cohead of private and commercial banking hes joining crimes other deputy the Board Members of Deutsche Bank speak english meetings eight men and two women from five countries who attend by Video Conference if necessary were going to look at the banks past to try and understand its present and future. Of june twenty sixth the i. M. F. Published the results of an investigation page twenty nine contained a frightening sentence Deutsche Bank appears to be the most important net contributor to systemic risks. So how dangerous is back. And i often do when one of these dominoes fall lets assume this one folds because this bank has lost the trust of investors it could be that this bank folds too but then the risk that even more will fall is very hard we call this earth herd effect and we distrust the entire Banking System on the back of the thin voice. To me Deutsche Bank has long been in the top five perhaps its in the top three globally in terms of these risks. Its about the culture its about the structure youve been through a number of c. E. O. s or changes in executives and it seems like you still have the same problems so thats an indicator that these are really deep seeded and hard to deal with thats for us what the i. M. F. Was highlighting there was basically that dodger bank is one of the most networked thanks in the world at least from its distant bank deserve it get this things and thats why were called a globally Significant Institution on but i. I personally see that as a logical consequence of our Business Model but as aunt and id go as far as to say that its a confirmation of the significance of Deutsche Bank in the whole system of the doj and banking because our system. Not a warning but an honor its all a question of interpretation or translation. And someone had kindly translated into german risk and connectedness into a fairly which if im not mistaken means dangerous in english and i didnt feel we were dangerous when either a danger to ourselves not of the system but of course were a big bank and hopefully we have a lot of connections. In order to try to sixteen it immediately became clear how small the step from risky to dangerous really is on the sixteenth of september the wall street journal published a sensational story the American Department of justice was demanding dont your bank pay several billion dollars because of irresponsible mortgage lending practices suddenly the most connected bank in the world seemed in real danger doesnt understand that and often it was an interesting day we were all in milan for a management Board Meeting that we had to think very quickly about how to respond if it was to be expected that this figure would cause shock waves in the media and on the markets which it did. And then made in london marking i said arcot on that. Vansittart if we were certain that the voltage in billion wasnt correct but we were also certain that wed get a Strong Client response as a result that was where the problem is that you can get a problem from people expecting that to be a problem comes more to the side. Jon cryer and the c. E. O. Had just been in office for a good year he was brought in to clean up a bank that was already suffering some reputational damage he was taken completely by surprise by the announcement in september. I have to say my initial reaction was a bit one of irritation. Not least because the communication of that number would inevitably be misleading and thats because we had no intention of paying that amount and we said so i think with some force on the evening on which we we found that it had been made public as soon as the fine of billions of dollars had been announced the hedge funds struck they didnt just sell Deutsche Bank shares on mass they also talked loudly about it share prices fell and thats exactly what the hedge funds were banking on so what you saw that that lingering uncertainty did cause some of the clients of the bank to to think about their positions at the bank and whether they wanted to maintain those positions and so within a couple of weeks i think it was around september twenty ninth we reported bloomberg reported that some hedge funds very very small portion of some ten hedge funds out of eight hundred plus customers how indeed shifted some of their balances some of the cast cash positions elsewhere amid concern about the solidity of the bank this is reminiscent of what happened two thousand and seven two thousand and eight over a period time clients pull money and it snowballs very very very quickly it has the potential to be at. Financial. The share price had been edging downwards for months after the hedge funds publicly withdrew their money for all to see the share price plummeted to a record low act and course the share price went down to nine the lowest rate i can remember of course and it is to miss and then the other noncon. That meant the bank could be taken over cheaply or it could be broken up it could be propped up by the state or it could disintegrate further into bankruptcy. The chancellor tried to exude an air of calm but in doing so just showed how serious the matter really was thirteen months most all i want to say about Deutsche Bank is that Deutsche Bank is part of the german banking and Financial System that we would like all businesses even if there are temporary difficult his to develop positively name why was she so nervous dont you bank is at the heart of the Financial System closely networked vajra vast number of deals what would happen if it went bankrupt we asked Banking Expert professor hans pate a berkoff. Dodge a bank is essential to germany we have to save it that could cost the taxpayer money that means europe would have less money in a really bitter situation that could mean that the german and the european taxpayer would in directly pay the fine to the americans. Good afternoon can you take me to dutch about that sixty votes for us thank you things became hectic in winter twenty sixteen khalfan war was to negotiate the fourteen billion dollars down to an acceptable level the clock was ticking the matter was supposed to be off the table by the end of the year. As its now youre sitting in a room in the department of justice in brooklyn in a normal meeting room on its own. Or and both sides present the matter from their point of view of the dinner went to not opinions differ and so you make offers and account of office over the course of days and weeks your argument hours on the board ongoing and the board hours. Negotiations cost money and trust the longer they take the more of buffer lost. To the start and of course we knew wed have clients who would react to that with extreme irritation and weve done a lot to prepare ourselves and when you have such turbulence you always risk losing client money all the clients will say that if they have business in mind theyll put it off and come back later when everythings over and often in the vata schleifer and calm down beat up enough for buyers. Coming down clients colleagues and shareholders imparting confidence around the world twenty four seven nothing was more important losing trust means losing money twenty thirty million month after month the bank had to put a stop to that but how. Come on in a bank can you trust a bank thats been landed with such a big fine the whole institution could be at risk even if theres not much of substance behind it banks live on trust that. The banks reputation was badly hit the only solution was to look ahead to the new management decided on a policy of openness bank Spokes Person i can do off invited us to participate in a conference for senior managers. If we behaved in more ways and all you know that you can face the. Time if. You cant do something what you know you can try to be something which you have to live what you want but what do they want to be open and credible thats why were allowed to film but the Spokes Person also reveals a fear of too much openness youll see exactly what we want to show you the banks own self confidence has taken on then if we are going to have was when you told people in the past you worked at Deutsche Bank there was no further comment as it was a first class address from a reputational standpoint that was one of the reasons why i chose my job because it stood for solid training if you had the chance or the good fortune to train a dog a bank like it was a great way to get your career going about us in poland she can export food yet the fifth of december twenty sixth seen speculation about the fate of dacha bank had now been ongoing for almost three months the United States was still demanding fourteen billion dollars the International Business press was invited to the dutch a banks guest villar the address of past glories for a confidential background briefing. If the journalists trusted dacha bank a little bit more after this evening it would be a big step forward. It was a tense period and i personally wanted to take some onus. Ship of the situation was a very important situation for the bank and we wanted to clarify the matter as soon as possible but of course in those negotiations you never controlled the timetable and it took a little longer than we would have liked it lasted much longer than expected and the discussions were wide ranging what would happen with the fourteen billion pound the bank intend to make money again in the future without profits the bank would still be a risk and dangerous to the whole Banking System c. E. O. John cryan in the middle flanked by the coheads of investment in Private Banking they are the crown prince is one of them will probably replace crying at the head of the table after the cleanup operation is finished if everything goes well. Private banking boss christian saving tells mathias book one of the seven german regional buses to talk to his clients personally and calm them down tell the people out there that will make it will get through this fourteen billion just as weve survived all the other crises in a hundred and forty seven year history. Scott target and there were days and even weeks when i had twenty meetings a days because the clients wanted to find out for themselves what was going on at the bank and you presume you have to tell clients that the bank remains strong and stable at the same time you have employees who are worried you guys only comes from the news or mom but it wasnt just clients who were involved hundreds of branches were two hundred and eighty eight were closed down five hundred were left tens of thousands of employees were worried about their jobs. Dodging Bank Actually has a different background it is traditionally sent to the german business world. I think germany is a perfect example of a country that did extremely well over a long period of time with it they are very lets say conservative approach to finance focused on the customer focused on the corporate sector and so on. You never bill you did not build the modern German Economy on the basis of speculative financial activity. Some other countries such as the United States had more of a tradition lets say in that kind of speculation you did you did not praise from a former i. M. F. Economist no less but for a long time dont your bank was embarrassed about its german business. Regional boss marty his book is on his way to meet a client they give their Packaging Company in bad noise in western germany. With the yogurt pot king is a shining example of germanys small and medium sized businesses or s emmys it has factories across europe and most recently in canada. The boss is certain with its course Plastic Packaging America Needs german yogurt pop technology. I think we have some clients but i would like to have people in north america who i can talk to about a new Customer Base and even new contacts. Thats an easy call for the international Deutsche Bank. From our contact with luggage in touch with our colleagues in new york we have Research Analysts for the Food Industry and i can put you in touch with properties of im on a contact here stone from bag to wall street an international network. William schmitz works for dontcha bank and hes happy to be of assistance. Oh yeah absolutely you know what ill do is like that when i get back to my desk. Some data on some of the trends in the us and other food and beverage side you look at some of the trends in the u. S. Food retail environment. The german yogurt part goes to america that too is one Investment Banking is about. This one bank has a Company Businesses and states as they conduct their deals or if they want to sell shares or bonds they advise companies when they float on the stock markets and during merges and they juggle stocks foreign currencies and Financial Products of all kinds Investment Bankers are the ones who make that really big money for their institutions. Such as banks Investment Bank has dreamed big and went to the hunger and of capitalism the United States brought back some really big risks that deals scared the i. M. F. And caused the American Justice Department to spring into action they decided in one thousand nine hundred more or less that they wanted to radically transform themselves and shift from being what i would describe as a somewhat stodgy conservative European Commercial Bank that basically learned to heavy industry to a new high powered high respect that would engage in Investment Banking to routers trading and to securitizations all of that required a talent and i think ability that they did not have. To get in there was fear so often that when you as you remember we went to a University Campus to attract students to work for Deutsche Bank but if you showed up here the nikkei the column. So they bought in the case of Deutsche Bank they bought. Bankers trust to get into the Investment Banking business in this country. In our bank after Bankers Trust hundreds came because we were suddenly part of america americas. Best Investment Banking in with. Investment banking and the United States has changed from being about underwriting and giving advice to being about from a tree trading on him issue and speculating school shift to and that has meant taking on an increasing amount of risk if if its made im game for an emmy or hes a. Proprietary trading means trading on ones own account and it fueled a gambling instinct banks lend to each other money on particularly favorable terms it became possible to trade in stocks currencies gold and derivatives to an extent that had never been seen before or for the profits of the banks and the bankers who took home huge commissions bought proprietary trading can go wrong to. All that mattered back then was taking part in the game the bills came in years later they cost billions in cash and the equivalent in trust. And should jane was one of the first to get involved and was right at the heart of it he was rewarded by being made c. E. O. Of Deutsche Bank. And shoes army had conquered dortch a bank from london the future seemed to belong to it under its leadership the Bank Made Huge profits for years the higher the risk the higher the potential return quick money for tough guys who like to gamble. But. Some firms view themselves as sort of swashbuckling wild west cowboys. Who are going to take crazy risks and because they know that theyll make money. Torture bank paid Something Like sixty five billion euros in incentive bonuses to their staff over the period from one thousand nine hundred ninety five thats an extraordinary amount of money and youve got people getting as much as one hundred million or more in bonuses and acumen here and they were incentivized to take extraordinary risk and that produces a problem because you take extraordinary risk and sooner or later something goes wrong and went wrong in a big way for deutsche and. They couldnt quite control what they set in motion. By may twenty fifteen couldnt keep going shortly after the a. G. M. It was over. Distinct i think from a tree trading that to excessive risks in the banks and we really dont have to repeat not Something Like that what to happen again i dont know what the Banking Sector would look like afterwards if there was even the one left its i could imagine banks being nationalized but i dont think that would bring about tenants protesting for. The bank also promised to clean up its act in Derivatives Trading a Risky Business closely connected to the crisis. When you buy derivatives youre gambling on future outcomes if you think that a currency or a commodity sides of it will be worth more in a few months you buy a derivative for this product if you sell the derivative as soon as its worth more youre in luck. When youve made money. In times of Economic Growth when the innovation is happening other kinds of people are attracted to banking and they may be they may be risk lovers. It people want some excitement in their lives. And they sure got it derivatives in the United States triggered the Global Banking crisis and ultimately threatened Deutsche Bank with the billion dollar fine so what actually happened. Dont your bank and others had packaged and sold mortgages in deliver to us without telling investors that those mortgages were as they say sub prime in other words there was a high risk of default. That acquired mortgages many of which were faulty they obviously knew that a lot of them were faulty they continued to pack of them up into Mortgage Backed securities and sell them off around the world as investment and that wasnt all employees at dont your bank even gambled on their own shares falling in other words on their own clients losing money this sort of excessive risk taking is now frowned upon at least if were to believe the many compliance officers risk managers and regulators in the bank theyre under the supervision of this woman who used to work as director of Financial Stability at bank to force banking in may we go back to a kind of boring activity and and thats fine i would charge as i mentioned all your ears to to manage risk for our other people follow client fuck up read potty for written people we need we we are there to manage their risk which means that it might be not always very fancy but that something that in fact gives you a value added for the Global Economy as a whole and so thats something that may be looked as boring but i think its something that is useful for the economy and that should be rewarded shortly before christmas twenty sixteen the size of the find a bank would really have to pay for selling Mortgage Backed securities became clear dont you bank was able to talk the Justice Department down from fourteen to seven point two billion dollars. So you say to me is this a good deal for doj a bank is an incredible deal for do it your bank the. Take seven billion of their shareholders money they give it to the Justice Department who extorts them and basically rules on whether or not they can do business in this country and the whole thing goes away. The american state would only get three point one billion dollars directly the remaining four point one billion would be offered to clients whod lost money the bank was obliged to cancel the debts of homeowners who defaulted and support communities harmed by the crisis. But. The biggest case was almost off the table but it was just one of eight thousand those who work in the department of justice wont have to worry about their jobs just yet dont your bank is like a Major Law Firm with a banking license. Is good to these and theres this unfortunate number of eight thousand legal cases its not always a bit misleading because if you look more closely the cases that are really significant or relevant are no more than twenty the significance and eleven. These twenty account for ninety percent of our provisions for legal disputes and stayed on for a child of god knows that means the seven thousand and some other cases result from on day to day business and arent in any way on the usual. Shift what this is going to give you. That may or may not be so wed like to check that and compare the stats with those of other banks but other banks dont publish the number of their lawsuits dacha bank publishes its fines. Over the past five years it has had to pay out fifteen billion euros. And very disappointing when colleagues have behaved in that manner. And what we need to do is obviously learn from those mistakes and ensure that to the maximum extent possible we dont allow them to recover. Thats why internal controls have been improved. Here at the brand new risk center in berlin six hundred fifty scientists and traders calculate everything that could go wrong from acts of god. To bad speculations. We are typing ellington called horse fishing in the field of coal mines i mean is trying to make sure that you comply with what you should comply with which is not the new hose and regulation which is a ballerina but also at the end the company would like to comply with honor so what society at large would expect banks to comply with. That all sounds good but what does it look like in practice there have been more new cases under the new management russian clients roll out along the ten billion dollars of dirty money through georgia bank and last year the bank still didnt have its huge derivatives business in the United States under control so the Regulatory Authority sent a watchdog he can do what he wants and the bank has to pay him the british regulators are critical of the Supervisory Board. And the all thora he considers the making of such statements by dont you bank to being reckless the seniority of the individuals dealing with them responsible for this issue is particularly concerning. We can read in the Company Report the level of funds theyre still expecting here. Dont you bank started the year twenty seventeen with seven point six billion euros set aside for the litigation risks and fines thats more than in the entire previous history of the bank. The bank paid millions in fines and claims it doesnt do deals like that anymore but what derivatives skeletons are still in the closet its impossible to tell from the outside how dangerous this risk is all thats known is the value of Deutsche Banks to rivet if portfolio. Conference gene i can understand the figures you read big enough to be taken and really seriously youre not exactly scared but these are signs about some news from. As a company you surely dont believe that these positions would still be tolerated in todays world and in todays Regulatory Environment if they werent properly secured and seen as stable in the he and up because he had the option of b. Because in both believe wed like to know with almost five hundred billion euros in derivatives wed like to know how much risk they entail checks have to be constant and comprehensive the chairman of the Supervisory Board assures us they are we contest that. After all it was this enormous derivatives portfolio that led to the i. M. F. Declaring dont you bank the biggest source of risk. American banks are not really comparable but even among european banks dont bank has the most derivatives on its Balance Sheet thirty percent of its total assets. In february twenty seventh team john cry and went to the World Economic forum in davos in switzerland it should have been a slightly less fraught environment but everyone there knew that the fourteen billion dollar threat was just one of many dangers hanging over him. As the Global Company that can endanger the rest of the money delete dont your bank is still far from being over the hump theres the risky big derivatives portfolio in addition the bank is earning too little and spending too much. How can a bank spend more than it makes the board is accountable to this man. Lightner head of dacha bank Supervisory Board hired them all. A month do you sometimes feel theres still a lack of cost awareness in the bank. Yes. Dacha bank needs to be able hold reducing costs almost always means cutting stuff and thats an expense in itself. Golden handshakes cost money but regain trust and security. Risk isnt that why bother they were cutting sixteen thousand staff around the world four thousand of them in germany the us and the he proceeds these are big numbers and theyre not nice but thats whats needed to make the bank more profitable again. So how does dont you bank want to do new business weve still not heard a convincing answer to that question john cryan is making cutbacks and savings at the same time as investing billions just to keep the place going. Computer systems are an example they were set up in the sixtys new technology has been added over the years but its not compatible with the Old Technology dont you bank currently has thirty eight different operating systems. Minus ms and skipped into it as far as i know no other large german bank has such an outdated system one skating in and out. Globally dontcha bank second biggest location is india ten thousand indians have been doing manually want Electronic Systems cant do through automation. Thats now to be phased out billions of being invested in Computer Systems while the bank has a general hiring freeze two departments are exempt compliance and nineteen. Who was there originally needed in the derivative business in america for example computer failure nearly caused a total collapse in twenty six thing but in spite of urgent warnings by the Supervisory Board the computers werent repaired. Unfortunately it looks like torture bank did not have adequate recordkeeping so they went for a period of weeks after an outage in two thousand and sixteen without knowing what their positions are or if you dont know what your positions are you could have an open artery and you could lose an awful lot of blood or be dead before you discover what your position really is thats not at all good for reestablishing trust in Investment Banking is big money at least being made here or just solid but rather boring Retail Banking actually bring in more. Once you take into account all the bad deals Investment Banking made a loss of eight hundred eighty Million Euros last year while private clients generated a profit of six hundred and ten Million Euros. If were to believe the bank its Investment Banking sector has been over a whole lot thats the anyway dont you bank can remain a major player in the financial industry and play with the big boys. But which of the two crown prince is marcus shank and christians a ving stands the better chance of becoming john prine successor one day is also clear selfconfident head of Investment Banking. We booted the bolts back out of the penalty box and emerged from last year with a no score draw and that wasnt an easy year but at some point weve got to win the game we have to get into the opposing sides home often score a goal. A no score draw but the competition is forged ahead even the small comments bank is more profitable now don chipp bank was the only one to make a loss again in twenty sixteen. We wanted to know how at risk Deutsche Bank really is and how dangerous in mid may the shareholders held that a g. M. Car from the wall of the chief legal officer is visibly more relaxed than half a year ago. And the shareholders are also in a better mood than they were just a few months back anything was on the counts back then even a bailout with taxpayers money thats all in the past now compared to past crisis meetings the twelve hour meeting is a walk in the park. The riskiest bank in the world is no longer the most dangerous the bankers have become significantly more modest hes been after almost two years as c. E. O. Im convinced that dont you bank that contributes greatly to the well being of our clients and society as a whole to get their share of going but thats hardly recognized anymore nor looked at come back as the in. The man in charge is making an effort and has learned german even though dontcha bank itself is becoming less and less german a chinese billionaire the ruling family from qatar and an American Fund are all major shareholders they want to see profits again banking means good Risk Management if the bank risks too little it doesnt make money if it risks too much it goes bust if it gets into bed with the wrong people it loses trust and money in. Real estate mogul donald trump was a major client of Deutsche Bank but then there was a spat and their business relationship folded. The private bank has got trump back along with his family and son in law lawmakers in america are now asking what a dont ship bank and on president up to. Donald trump is in the process of relaxing strict banking regulations in february twenty seventeen he signed an order to the secretary of the treasury the tough controls introduced after the financial crisis should be relaxed as quickly as possible they need each other. Im talking about in the pre president ial era they need each other because donald trump was couldnt get financing from other wall street firms and hes the kind of client that Deutsche Bank in this country ends up with because they cant crack the top tier of clients and so thats sort of a symbiotic relationship that the two developed over time. Its a difficult balance between making money again only one hand and not messing up on the other. If dont your bank cant achieve this balance things will remain difficult. Its all about Good Business and trust. Defy a good deal because they actually i think the question of social acceptance is the main risk for Deutsche Bank and his aunts and healing yes i dare i as a if we dont manage to get broad swathes of the population in the media and politicians to understand that its an important requirement for the success of the German Economy to have a globally competitive Capital Market oriented Financial Institution and to support it publicly and then we wont be successful in the long term thats the best in the long for sticking to what we have to do a lot on to achieve that and whether well manage it its as remains to be seen as. But thats the main risk we have is failing on a day i think to dons but off the coast of coast as a good as well. If youll plausible youll be accepted its all about trust but also about the figures and deals whats ultimately decisive is the deals the bank does and the ones it doesnt. So what did the bank Spokes Person say again you can face the. Time if. 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But in a society in which breastfeeding is often frowned upon and adds well for me to abound with profits is more important than my babys well being how do i know how to make the right decisions mostly busy listening to you know all these parenting mills starting to sim annoying on d w. The e. U. On the African Union have agreed on a plan to dismantle people smuggling networks. Stranded migrants in libya the plan was drawn
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