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The Scandalous Tale of an Investment bank - Deutsche Bank

Article Abstract - A bank which started as a specialist bank for financing foreign trade and exporting German exports in 1870 had grown up into a multinational investment bank and financial services company. It is the largest European bank to have its own private label in the Wall Street.

From the 2000’s, the company has gotten prideful of its ownership and had resorted to multiple scams which shook the entire banking industry. Multiple allegations and multiple investigations didn’t stop it from limiting itself to the frauds. The distasteful thing was that it never stopped even though it got caught. It resorted to all the things which a company in its highest position shouldn’t have done. They were in 17 th position worldwide in the world’s leading bank list. The question that arises in everyone’s mind is a bank which has such a huge history and which has been there for the goodwill of everyone, how has it suddenly changed its mind? After all the hard work and effort which has been put into strengthen the foundation and pillars of the bank, was it so easy to just leave everything and fall into the hands of corrupts? Or has this kind of thing going on from the start and went unnoticed? Or had the company become so prideful of its position that it thought no one could point fingers on it because of the history and legacy it carried. Well whatever the bank thought it backfired very badly upon them, so badly that their reputation crumbled into pieces which are never getting back together. They exited their fort in Wall Street with no intentions of coming back. Their assets have lost their value. All their share prices are all time low like below the ground of what they used to be. This study of Deutsche Bank makes everyone think, were those scandals really worth their everything? The answer lies within themselves.

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The Complete Story of Deutsche bank – Over and Done from Wall Street.

Let’s Start from the beginning i.e. Introduction of Deutsche Bank.
Deutsche Bank was the leading German bank with strong European roots and a global network. The bank always focused on its strengths in a Corporate Bank newly created in 2019, a leading Private Bank, a focused investment bank and in asset management. The Historical Association of Deutsche Bank was founded on June 12, 1991 as a NPO (non-profit organization). This Historical Association has around 1,900 members. Its main objective is to draw attention to the history of banking - especially of Deutsche Bank - and describe the economic, cultural and political environment in which banks operate. Deutsche Bank was one of the biggest financial and banking services providers in the world. It is headquartered at Deutsche Bank Twin Towers, in Frankfurt, Germany, and is a German bank. It has been the largest foreign exchange dealer in the year 2006. It has also been a component of STOXX Europe 50 stock market index till it was delisted in 2016- August 8th.

Rise of Deutsche Bank:

Becoming a global player 1989 until now. Starting with the acquisition of the UK merchant bank Morgan Grenfell in 1989 global expansion culminated in the acquisition of the New York investment bank Bankers Trust, which opened the American market up to Deutsche Bank In the following years international investment banking accounted for an ever-increasing share of Deutsche Bank’s business. Globalization brought the capital markets even closer together. The liberalization of economic areas and innovative technologies opened up new growth opportunities. Since then Asia in particular has seen new markets develop at breakneck speed. Source: Deutsche Bank

Deutsche Bank into Wall Street:


When did Deutsche Bank Go Public?

Dated October 2001, Deutsche Bank was listed on the New York Stock Exchange. It was the first NYSE listing after interruption due to 11 September attacks. Deutsche Bank had arrived on the Wall Street in early 2003 with 5,500 employees, Wall Street, as a street, didn’t have the same shine as it once had, and Downtown was still suffering the aftermaths of the 9/11 attacks.

Awards

• Golden Peacock National Award for Risk Management - 2017
• Frost & Sullivan Award for Operational Excellence Leadership -2017
• CMO Asia National Award for Best Digital Search Marketing Campaign -2017

DEUTSCHE BANK HAS WON SEVEN IFR AWARDS: (2013)

• Commodity Derivatives House
• EMEA Structured Equity House
• EMEA Loan House
• EMEA High-Yield Bond House
• EMEA Liability Management House
• SSAR Bond House
• Sterling Bond Ho use

Acquisitions:

• Disconto-Gesellschaft in Berlin - 1929
• Mendelssohn & Co. - 1938
• Morgan, Grenfell & Company - 1990
• Bankers Trust, 30 November - 1998[154]
• Scudder Investments - 2001
• RREEF - 2002
• Berkshire Mortgage Finance - 2004
• Chapel Funding - 2006
• Norisbank - 2006
• MortgageIT - 2007
• Hollandsche Bank-Unie - 2008
• Sal. Oppenheim - 2010
• Deutsche Postbank – 2010
Source: Wiki

List of the Banks who Exited Wall Street:

1. Citi Group
2. Lehman Brothers
3. Bear Stearns
4. Deutsche Bank

The Beginning of the End: Where it all Started: Deutsche bank scandal explained


A Series of Unfortunate Events

In the recent years, Deutsche Bank has desperately been trying to reinvent itself. Having skilled multiple CEOs since the Financial Crisis (2008), the newest attempt at reinvention involves a huge overhaul of operations and staff announced by co-CEO John Cryan in October 2015. The bank is now within the process of cutting 9,000 employees and ceasing operations in 10 countries. This is where our timeline of Deutsche Bank’s most up-to-date sorrows begins – and therefore the last six months, especially, are fast and furious. The Deutsche Bank had started the year (2016) by announcing an all time record-setting loss in 2015 of €6.8 billion. Cryan went on an instantaneous PR binge, proclaiming that the bank was “rock solid”. German minister of finance Wolfgang Schäuble even went out of his way to say he had “no concerns” about Deutsche Bank.

Translation: things were in full-on crisis mode.

In the following weeks, here’s what happened:
• May 16, 2016: Berenberg Bank warns that the Deutsche Bank’s woes may be “insurmountable”, noting that DB is more than 40 times levered.
• June 2, 2016: Two ex-employees are charged in an ongoing U.S. Libor probe for rigging interest rates. Meanwhile, the UK’s FCA (Financial Conduct Authority) says there are a minimum of 29 Deutsche Bank employees involved in the scandal.
• June 23, 2016: Brexit decision hits the Deutsche Bank hard. The bank is the largest European bank in London and receives 19% of its revenues from the UK.
• June 29, 2016: IMF issues a statement that “Deutsche Bank appears to be the most important net contributor to systemic risks”.
• June 30, 2016: The Federal Reserve announces that Deutsche Bank fails Fed stress test in US, due to “poor financial planning and risk management”.
Source: visual capitalist


Deutsche bank collapse: Scandals


1. Laundering Russian money:

In 2017, The Deutsche Bank was fined a total of $630 million (€553.5 million) by UK and US financial authorities over accusations of having laundered money out of Russia. The regulators said that these flaws allowed a corrupt group of offshore entities and bank traders to improperly and covertly transfer more than $10 billion out of Russia.

2. Libor interest rate scam:

Two years prior to this scandal, Deutsche Bank had already been fined a record $2.5 billion dollars by US and British authorities for its role in an interest rate scam between 2003 and 2007.
The British banking authorities said at least 29 Deutsche Bank employees were involved in the scam, while US regulators ordered the bank to fire seven employees, including vice-presidents and directors.
Several other lenders faced similar allegations, but comparatively smaller punishments.

3. Violation of US economic sanctions

The same year, more money: after the Libor scandal fines, Deutsche Bank agreed to a pay a hefty batch for settlement with the US financial authorities. This time, it was for violating US sanctions against a number of countries, including Libya, Sudan, Iran and Syria. Deutsche Bank employees had devised a strategy to get around the sanctions and carry out transaction’s worth roughly $10.9 billion. The bank agreed to pay $258 million for the settlements.

4. Sale of toxic securities leading up to the financial crisis

Deutsche Bank was one in the series of lenders, guilty of selling and pooling toxic financial products leading up to the 2007 and 2008 financial crisis. The bank had signed a $7.2 billion settlement with the US Department of Justice in 2017, after being accused of selling investors bad mortgage-backed securities between 2005 and 2007.

5. Spying on its critics

In 2009, after a detailed internal investigation, Deutsche Bank had admitted that it had hired a detective agency to spy on people who were considered threatening for the bank – including a journalist, a shareholder, and a member of the public. After the results had been disclosed, Deutsche Bank had dismissed the employees who it thought were involved with the spying, including its head of corporate security for Germany and the global head of investor relations.
Source: Deutsche Bank


Official Statement of Deutsche Bank at Frankfurt:

Deutsche Bank reported a huge loss for the last three months of 2019 and for the next full year as it cut staff and wrote down the value of assets, affirming its status as one of Europe’s most troubled big lenders. The lender said it lost 1.5 billion euros, or $1.6 billion, within the last three months of 2019, bringing the entire loss for the year to €5.3 billion. In 2018, the bank effectively broke even for the year and within the fourth quarter. The Frankfurt-based bank, was once Europe’s largest by assets, is in the midst of a desperate attempt to recover from years of mismanagement and scandal that has caused its share price to plummet more than 90 percent since 2007.

Deutsche Bank portrayed its loss as a resolute attempt to deal with mistakes of its the past. Among other things, the bank absorbed severance payments because it eliminated quite 4,000 jobs, bringing the entire number of employees to 88,000. The bank has also recorded losses as it acknowledged that some of its assets had lost value. “Our new strategy is gaining traction,” Christian Sewing, the bank’s chief executive, said during a statement. “We’re very confident we will finance our transformation with our own resources and return to growth.” Mr. Sewing said the company was 70% through a restructuring program that, though was costly in the short term, will deliver consistent profits. “I substitute front of you during a very optimistic frame of mind,” he said at a press conference in Frankfurt. “We have taken a series of landmark decisions and made effective progress with the foremost radical transformation of Deutsche Bank for 2 decades.” Shares of the bank rose 6 percent, they have been a good investment for anyone who bought the stock when it hit rock bottom in August 2019. Since then, the shares have risen 44 percent, though they are still worth only a silver of their value a decade ago.

Risk Management

Filippo Alloatti, a senior credit analyst said Deutsche Bank has made progress reducing risk and is becoming more efficient. “Costs at the moment are under control.” At the same time, investors will be keeping an eye on whether Deutsche Bank can maintain revenue even as it goes down. The revenue has slipped 4 percent in the last three months of 2019 compared with a year earlier, to €5.4 billion. Until Mr. Sewing, an expert in risk management, took over in 2018, Deutsche Bank was led by investment bankers reluctant to form drastic changes to the company’s aggressive moneymaking strategies. Since then, the bank has scaled back on its ambitions. After it acquired Wall Street’s Bankers Trust in 1999, Deutsche Bank aspired to be during a league with American megabanks like Goldman Sachs and JPMorgan Chase. But it did so by taking chances, including issuing many billions of dollars in high-risk derivatives. It lent money to Donald J. Trump’s organization when other banks wouldn’t.

The 2008 financial crisis exposed a series of wrongdoings, including laundered money, rigged interest rates and violations of sanctions against countries like Iran. The scandals have damaged Deutsche Bank’s reputation and led to billions of dollars in fines. Regulators were anxious to avoid more financial crises and forced Deutsche Bank and other lenders to require fewer risks. The bank, which once symbolized German economic prowess, is now that specialize in less glamorous and fewer hazardous businesses like helping German exporters manage financial transactions abroad. Deutsche Bank is closing or shrinking operations that sell stocks, and has quarantined risky assets during a separate unit. Other big European banks, like UBS of Switzerland and Barclays in Britain, scaled back their operations after the 2008 financial crisis, but Deutsche Bank clung to investment banking whilst it continued to get billions of euros in losses. The bank has not completely abandoned investment banking. It reported a pointy increase in sales from trading bonds and other debt. But Mr. Sewing said the bank had not changed course on investment banking.

Deutsche Bank also emphasized that it had been sticking with the us market, despite its long history of problems with American regulators who criticized the bank for weak internal controls. “In order to achieve success, Deutsche Bank must be global, with a meaningful footprint within the U.S.,” said Christiana Riley, chief executive of the bank’s American operations. “There is no other market like the U.S.”

Conclusion:

There is no specified reason on why these kinds of scandals had been done by the bank which was a long-lived legacy. Either way the guilty conscience of the people involved in the scandal would have to have an answer for that. These scandals have affected the currency and the gold value a lot. There were drastic ups and downs in their values. If the polls will continue to favor Mr. Joe Biden and he is most likely to pass a Big Stimulus Bill which in turn will help Gold Prices. Goldman Sachs says that the odds of dollar weakness have increased due to a higher probability of a Biden win and delays in the corona virus vaccine, so this could be positive for the Gold. Coupling the facts and the news of Deutsche Bank we can expect an economic distress and Gold in a bullish run in the coming weeks. So, keep a watch for the price to go up.

Author: Hima Varsha