Gambled away in the financial crisis – The Deutsche Bank story | DW Documentary

Gambled away in the financial crisis – The Deutsche Bank story | DW Documentary

it’s summer 2007 the first ever iPhone goes on sale a train strike has paralyzed Germany stutgart and National Football Champions the world’s most powerful politicians are meeting on the Baltic there’s a burgeoning financial crisis in the US and the rolling stones are on tour in July they stage an exclusive concert in Barcelona for 200 Deutsche Bank investment bankers and their clients you know I was right at the front of the stage about I could have grab MC jackers foot and then he said and the great thing is the money we’re getting for this is coming out of your bonuses huge cheers at the same time there’s growing certainty on New York Stock Exchange that a major Financial collapse is imminent and S from feeling kind of quite boyed up by seeing the Rolling Stones you know kind of I went to bed that night kind of feeling that we’re just about to potentially blow [Music] up it’s a mega event taking place on the brink of an abyss the exclusive Stones performance reportedly cost more than $4 million up on the 32nd Floor at Deutsche Bank ysf aaman was CEO at the time his aim to make it the world’s biggest bank had left him reliant on the world of investment banking and so he turned a blind eye to such escapades did you know about this concert I don’t think so I didn’t well perhaps I knew there was a concert but I wasn’t involved they might as well have like played the gig under a massive sign saying this is the top you know that um that this was a kind of emblematic of the sort of slight Madness of the banking industry such opulence is now ancient history and ysf aaman has also long since vacated his chair at Deutsche Bank but his time as CEO still shapes the institution today in the years that followed the stones Fiasco the once reputable name of the financial institution was dragged through the mud its reputation still hasn’t recovered to this [Music] day this is francus yasa in Berlin’s MIT District the birthplace of Deutsche Bank it was founded in 1870 in an unassuming building that’s long gone [Music] [Applause] the founders led by private Banker arbert delbrook wanted their safes to offer their clients security for their deposits but in their first 10 years they instead focused on conquering world markets and providing loans for the pre-export financing Market would I would definitely say that they were strongly motivated by the goal of founding a strong German bank and also to make Germany economically strong internationally it wasn’t just business but patriotism that also played a role the export Market collapsed however with the start of World War I in 1914 the still fledgling Deutsche Bank was facing [Music] ruin the foreign branches had be closed one after another they developed several strategies to compensate one was to grow its client base inside Germany another was for Deutsche Bank to get very heavily involved in financing the war economy during World War I 1929 saw the next existential crisis Black Tuesday devastating stock losses on Wall Street triggered a global economic crisis that heralded mass unemployment and social Strife all over the [Music] world the impacts of the Great Depression also reached Deutsche bank’s New Berlin headquarters the darkest chapter in Deutsche bank’s history came in aitz 1943 this time the banking Institute was not only financing the war economy but also the Holocaust the systematic murder of Jews and other minorities the banks branch in carav vitza guaranteed loans to top and Sons the company that made the incinerators for the aitz crematoria starting in 1937 Herman YF ABS was boss of Deutsche Bank ABS himself said after 1945 that he didn’t want to be counted among those who said they had known nothing he indirectly admitted that he’d been quite aware of the crimes being committed by the [Music] Nazis in 1954 the country was getting back on its feet West Germany won the football World Cup the German economic Miracle had begun but so too had the Cold War the Soviet Union launched Sputnik the first satellite into space Deutsche Bank was finally reformed in 1957 this time in Frankfurt not Berlin it had been broken up by the Allies after the war [Music] and in spite of his role in the Third Reich Herman ysf ABS returned as [Music] chairman ABS Herman of apps was a convicted war criminal but they needed dorche Bank after the war there was starvation nothing to eat no heating half of the country lay in ruin they needed leaders who knew how to do business who had contacts and could get things done and Ops must have been appointed back to his post at the discretion of the [Music] [Applause] [Music] Allies a cattle drive in Switzerland sanand while Herman yusf ABS was hoping to win back toche bank’s reputation in the late 1950s his future successor was growing up in the Swiss mountains ysf aaman was the first of three sons of rural physician kle aaman and wife [Music] Margaret he loved sport and music and whatever aaman did he wanted to win sack racing included vasim he was born ambitious I think his father was a person that demanded [Music] it after his military service aaman studied business in the Swiss city of sank gin after briefly considering following his Father’s Footsteps in [Music] medicine after graduating he turned down an offer for a future in acad Amia instead he pursued a career in 1977 in banking with credit Swiss in Zurich back then most banking took place manually at the counter Bankers kept accounts exchanged currencies granted loans and traded in shares it wasn’t anything spectacular but Bankers did make money doing [Music] it loans were the biggest business for banks at that time the banks lent money to small and big customers cashing in on the interest or they traded shares and currencies for a commission year by year aaman ascended the career ladder at credit Swiss he was on the brink of taking over leadership of the entire Bank when out of the blue everything came crashing down 19 in 1996 he suddenly walked he left the bank his departure came after a power struggle which he had basically lost the same year aaman had a new opportunity in Frankfurt in its Twin Towers Deutsche Bank was looking to fundamentally revamp its business model and finally become a global player chief executive at Deutsche Bank Hilma copper brought aaman into the [Music] fold at the time copper was facing a considerable problem disgraced German real estate Tycoon Jurgen Schneider had been extradited from the US he was a former client and things were threatening to become very very embarrassing for Deutsche Bank Schneider was a brilliant fraudster he bought up old real estate and restored buildings without any consideration for cost his last project is Unforgettable it was on the site of a department store in Frankfurt s district and he falsely inflated its value all in the view of the Deutsche Bank Towers then when they could no longer deny what was happening Deutsche Bank turned the tap off but it was too late and you had all these contractors waiting to be paid when Schneider initially fled to the US copper had played down the damage to Deutsche Bank this isn’t a lot of money we estimate that for all three projects that we’re talking about the three that involve Deutsche Bank are very clearly under 50 million marks we’re talking about peanuts here peanuts peanuts copper made it sound like 50 million Deutch marks 252 million EUR today was spare change an enormous display of arrogance from the banker especially given the financial consequences to the construction companies involved so when this smart Swiss Banker turned up in the form of yusf aaman it suited hilar copper to polish up his bruised image it was certainly a new world for me but I soon felt at home and sensed that not all the Glitters at deutche bank is gold I saw that I could bring something to the table a way of doing things that was better back in Switzerland at the time and despite the peanuts incident Shar in Deutsche Bank was stable and trading at around € 28 but for the ambitious aaman it wasn’t enough he wanted more [Music] as this TV ad shows Deutsche Bank still highly valued its relationships with private customers it wanted to show that it was serious reliable and trustworthy [Music] but at the end of the 1980s a new era began in London’s Financial Center Investment Banking was the buzzword at the time marking a radical change in the [Music] industry the decision to join the big players at a global level was of course something quite different to the original concept of Deutsche Bank when it was founded 150 years earlier that was the end of the traditional house Bank principle where a company had a close relationship with a bank and got its loans there Investment Banking is about trading in raw materials currencies and bonds whilst using the bank’s own money or the clients the high sums that Traders juggle mean that even the smallest currency fluctuation can lead to massive gains or losses risk is the name of the game in 1996 new board member ysf aaman took over the investment banking sector at Deutsche Bank Joe aam really believed in the Investment Bank he believed that that was a sound way of Deutsche Bank becoming a Universal Bank covering every client all over the world so he put a lot of pressure on on the bank the Investment Bank to make money and then if you made money there was pressure to make more money and then the next year more money the employees on the trade floor of the investment Banks came up with increasingly complex Financial products the only thing that counted was the profit which dictated the size of their bonuses in in order to profit you had to take risks taking risk is the lifeblood of these people and and the notion of turning down possible money-making opportunities because they’re too risky that’s just not in their DNA the culture on Wall Street was definitely shaped by this very male-dominated business it was all about my bonus is bigger than yours they lived in their own world they pursued the kind of lifestyle that they perhaps couldn’t otherwise have afforded especially in the US investment bankers live in a world of their own it’s a money machine that Outsiders have no chance of completely understanding including the boss it’s impossible even as the boss thousands of products are being developed even if you had to sign off on every one of them you’d have to look at them in detail I don’t think that’s possible unlike his boss Mr aaman this man Edson Mitchell was a man that understood Investment Banking inside and out Deutsche Bank had poached him from the competition and with him their best employees mitchellon Mitchell was the bank’s so-called rain maker rain maker is the term for an employee that brings in unbelievable sums of money so akan knew right away his standing was writing on the standing of Edson Mitchell and the role of Edson Mitchell Mitch Up Edson Mitchell became I think in many ways the worst nightmare of Joe Aran because here’s this American who is so bold and Brash they thought that the future was in sales and trading and Investment Banking and this very kind of cowboy uh type of business that the Americans had perfected and that the Europeans really needed to rush to C C up jetting between London and New York on the Concord Edson Mitchell would fire up his shirt sleeved buddies with exorbitant bonuses and wild parties greed appeared to be his recipe for Success London and the gro a house Ballroom on December 25st 2000 Deutsche bank’s investment bankers celebrated Christmas with their best clients Mitchell takes the stage the Mission Impossible theme song is blaring and he declares to this crowd the next year is going to be even better than the last and essentially the message is we are Conquering the world among the guests were a number of escorts and one of the things that they would do was hire young women to serve as uh weight staff and kind of flirt a bit with the customers so they developed a system where pinned to their little black dresses would be these blue ribbons which would mean that I’m a Staff I’m fair [Music] [Applause] game that’s a part of it too entertaining the clients and treating them well some things probably go too far but enforcing restraints would have violated the investment culture what kind of culture is that what kind of people are they to be kept in line by offering them these types of events it shows what kind of depths the bank had sunk [Music] to the day after the big bash Edson Mitchell was due home in rangley Maine for the Christmas holidays but the private jet that he barded in Boston never made it it slammed into a mountain on its descent the pilot and his passenger Edson Mitchell were killed [Music] immediately I went to nearly all the memorials and made speeches it was a significant loss for the bank and of course people were wondering who his successor would be so focus on when Mitchell dies there is this power vacuum and just all hell breaks loose as a result of that cultural shift that he had introduced aaman named unshu Jane to succeed Mitchell people that worked in edson’s world didn’t really trust on you and uh that that would be that would be a problematic to put him in that position I said so directly to Joe arriman was it a big mistake of Joe aaman I would say s High high tolerance for risk that I think in the end did not serve Deutsche Bank well starting in 2001 anshu Jane was in the driver’s seat he had a reputation for not being particularly careful something qualheim feared ultimately the previously respected Deutsche Bank would lose their reputation under his watch [Music] in 2002 the Euro became the eu’s official cash currency Michelle Schumacher won his fifth championship title Gard schroer secured another term as German Chancellor in Coalition with the greens and German media Mogul Leo kers declared bankruptcy a few years earlier Hill mopa Mr peanuts had been replaced by Rolph e Brer when Brer cast doubt on the credit standing of his client Leo kers during a TV interview it turned into a fiasco and a house Bank a house bank is meant to protect its customers to say right in the middle of a deal that he won’t be getting any more money you can’t do that that crucified the businessman Leo kir after that it was over Leo kers sued Brer and Deutsche Bank in illegal battle that lasted years after his death in 2011 his heirs were awarded around a billion euros betraying their client Leo kir proved very costly for doche Bank 911 hit Deutsche Bank hard their Manhattan officers were badly damaged when the Twin Towers collapsed and had to be demolished but every catastrophe offers the chance of a new beginning and Deutsche Bank moved to Wall Street by the annual meeting of May 2002 ysv aaman had finally reached the summit and became the first non German to head the institution [Music] ranked internationally Deutsche bank’s Balance Books put it in fifth place for aaman not high [Music] enough aaman wanted to be the best on Wall Street Deutsche bank’s shares would be listed on the New York Stock Exchange a few months later [Music] later aaman wouldn’t let anything stop him just like the sack race way back when the bank operative in the during the ’90s early 2000s deutche Bank was effectively earning very little if anything and I said if we want to play a global role then we have to be profitable as our Rivals our Capital yields at the time were relatively small pulled from also quite small Capital reserves before tax at 25% looking back it seems almost insane um you know 25 is a lot of return on Equity um at the time it didn’t seem outrageous because a lot of banks were making similar kind of uh returns when ysf aaman took control in 2002 the share price was at €59 it had more than doubled its value since 1996 but could this continue by early 2004 aaman already appeared to be standing on the precipice he faced trial after the Takeover of German telecom’s Giant Manis Man by British mobile phone company Vodaphone aaman had been on the supervisory board that had approved a bonus worth millions to its then chairman klous Essa was this an abuse of trust the image of aaman showing a victory sign before the trial remains IM blazent in many [Music] memories you’d expect the chairman or exec of Germany’s biggest bank to keep things under control that’s why they get big money they’re paid well so things like this don’t happen so when something like this happens you wonder was it all intentional Coppa peanuts Roya Kish and aaman victory this series of faux PA by Deutsche Bank chairman or Executives was peculiar Bank the trial against aaman was settled finally with a 3.2 million EUR payout under the Court’s terms aaman didn’t admit guilt and was allowed to stay as head of Deutsche Bank but now he was under pressure he knew he had to deliver London and Deutsche bank’s money machines were running at Full Tilt andu Jane was using the promise of bonuses to drive his workers to make money much more money as B’s team had the bonus system has various psychological and economic structural consequences and conditions that I regard as extraordinarily detrimental it causes greed to set in and the hunger for more and more and more money kind of becomes insatiable if youed up a transaction and lost money there was no great disincentive except that you might lose your job but the next bank would be there waiting to snap you up it’s a massive thing psychologically being able to recognize when greed or striving for profit has become too much that’s what aaman says today but it seems that back then he had little interest in preventing legal and ethical boundaries from being pushed further and further internal emails later proved that a number of Traders were manipul cating interest rates and engaging in illegal business deals here an employee writes in London I think it’s simple this is fraud you’ve got a Deutsche Bank manager claiming this is fraud and then Deutsche Bank gets involved no one asks should we get involved in an illegal business deal what they’re saying is this is illegal but how big is the risk of us getting caught Deutsche Bank later ended up paying fines of $2.5 billion for manipulating interest rates and violating us sanctions between 2003 and 2005 it’s the mid 2000s and Deutsche Bank throws a Christmas party in a Milan nightclub time once again for the investment bankers to go wild [Music] Uber I wasn’t bothered by that and the clients appreciated it I should add Anu Jan knows he has to keep his team on his side for example by paying go go dancers from the firm’s coffers this time they’re not wearing the little blue ribbons on their outfits [Music] by 2006 Deutsche Bank was a fixture on Wall Street profits were surging but a storm was brewing and it all had to do with the subprime mortgage [Music] Market his analysts tip off y of aaman warning a gigantic crash was likely but what could aaman UND Doo Deutsche Bank was heavily tied up in the dubious deals in the US mortgage [Music] Market houses everywhere went up for sale many banks had taken high risks with their mortgage lending now they had to offload those Bad Assets as quickly as possible as many people just didn’t want to believe it I was even criticized inside the bank or felt resistance because I said what’s happening is not good we had to get rid of the risk and sell it off you had ANW Jan’s team who were stuck right in there they thought everything would work out fine then there were people who said it couldn’t work they said what you’re doing is alchemy trying to turn leg into gold it’s Barcelona July 2007 the crash is coming and everyone knows it but Anu Jan’s investment bankers are living it up at an exclusive Rolling Stones concert giving the impression it’s business as usual the key is to be able to estimate the risks well enough to be able to carry on dancing while the music plays but notice when the musicians are getting tired as it were and then get off the dance floor early just in time the dorf based ikb deutcher industry Bank cleared the Dance Floor a bit too late they were one of Deutsche bank’s New York clients at the end of July 2007 2 weeks after the Stones concert in Barcelona the financial services company was facing bankruptcy the ikb executive had mistaken aiman’s lead for gold the do Deutsche Bank helped create these products in the US which contained bad loans it packaged them so you didn’t know exactly what was in there and then sold them yeah but we didn’t force it on anyone we sold them these products because they were asking for them the dumb money from dorf the dumb money from dorf the IB was one of the last players in that market had no idea what kind of storm was brewing [Music] Deutsche Banks former Chief Economist under ysf aaman and his right-and man has a harsh verdict on the ikb [Music] deal legally speaking I’d say it was ib’s problem morally and ethically they should have held back sooner but they didn’t because these products had a nice profit margin a number of rescue packages had to be secured to prevent ikb from going bankrupt in the end private Banks paid €1 1.5 billion EUR and Savings Banks around 370 million The Lion Share though was covered by the German national Investment Bank the kfw it covered more than7 billion EUR the kfw itself needed huge amounts of tax money so it could [Music] survive although I don’t like saying it as a market Economist State support was the only way ingred Matos Meer the then head of the kfw criticizes the fact that the Deutsche Bank under aaman had to be bailed out by the taxpayer aaman had to mitigate the risks he’d largely instigated himself by selling the ikb these products these bad assets by passing off the costs onto the kfw the national Investment Bank that shows what made arran tick and basically how lacking in Scruples he was had ysf aaman gambled and lost everything [Music] following the ikb crisis ysf aaman returned to Switzerland and a village in toino like every summer meanwhile the creaking sound of the International Financial system was becoming hard to [Music] ignore aaman knew he had to face the public Deutsche bank’s reputation was in tatters [Music] aaman went on a popular television talk show to offer his remorse and he insisted on appearing alone when things are going badly it’s fair to say you’ve made a mistake and Deutsche Bank made mistakes in this crisis too you have to admit it try to correct them and learn from them years later Deutsche Bank would find itself being held to account in the US for these very mistakes to avoid criminal proceedings Deutsche Bank in 2017 reached a $7.2 billion settlement in addition it already had to pay out $1.9 billion in compensation in 2013 to two US state mortgage lenders in total Deutsche Bank had paid out $9.1 billion it was the biggest penalty paid out during the aaman era but it wouldn’t be the last just a few months later the Wall Street Crash on September the 15th 2008 Investment Bank Leman Brothers declared bankruptcy in the wake of the US subprime crisis a domino effect threatened to trigger the same Fate In other Banks the Global Financial system was on the brink on stock exchanges around the world Traders frantically tried to save what they could Bank was for deutche Bank it actually wasn’t that bad we were relatively well prepared for a collapse like thatan collapse at the German chancel re one crisis meeting followed the next the government’s priority was preventing German Savers from Panic or chaos would ensure we’re saying to Savers that their deposits are secure and the German government guarantees that the German government feared another Black Tuesday like the one in 1929 when so many people lost their savings and then their jobs there are a few parallels of course you had these huge risks that the banks were taking that they didn’t expect they would have to guarantee before 1931 it was mainly the credit boom and in the 2000s it was mostly the International Financial Market in October 2008 the international monetary fund met in Washington as frantic efforts continued everywhere to stop the Global Financial system from collapsing youf aaman was now being regarded as an international firefighter even though his bank was among the arsonists and the same time another Fiasco was unfolding for Deutsche Bank a property developer had defaulted on a construction loan worth millions of dollars in where else gambler’s Paradise Las Vegas today the Cosmopolitan Hotel is a complex of superlatives it has more than 3,000 rooms more than 5,000 employees hundreds of slot machines but in the midst of the 2008 financial crisis Deutsche Bank inherited the half built project when its developer declared [Music] bankruptcy it was a building site for 10 years it would have been known as the Deutsche Bank building site and banks are responsible for what these projects look like primarily it was about reputation so they said we won’t write this off we’ll finish building it and sell it and if we have to write off debts then we’ll do it but only when the financial crisis is passed it Peak and we have money again then people will hardly notice an expensive mistake for Deutsche Bank as it turned [Music] out during that period aaman was a regular guest of the German cabinet the government was planning a state rescue package for German banks aaman counted the measure with a statement saying he would be ashamed if Deutsche Bank was among those needing a government bailout many saw this as aaman giving his victory sign again verbally this time the chancellor didn’t like it commenting via her spokesperson she called aiman’s statement incomprehensible and [Music] unacceptable he shouldn’t have said that but I think he meant that as captain of the ship at least he didn’t run his ship ground and if he had then he’d have been ashamed to go straight to the state it’s not just about State money but it’s about the state’s influence pay would have been monitored and limited to a maximum of around 500,000,000 Max and for deutche banks Investment Banking that would have been bad we’d have lost a lot of [Music] employees shares in the bank had plunged from an all-time high of 88 in April 2007 to just € 16 by January 2009 I think it’s pretty clear that after 2007 2008 and particularly with the regulation changes that came in afterwards that Deutsche Bank should have probably altered its business model quickly uh and it didn’t but Anu Jane and his London crowd didn’t want to change their model on the contrary driven by arrogance and greed they were diving deeper and deeper into shadier practices as early as June 2008 aaman in Frankfurt had had an angry phone call with Anu Jane aiman complained about the cultural deficits of the investment bankers and said he would not tolerate it any longer those were the findings of a later banking supervisory probe but it also found no action was taken I always said that I think since 2006 no business is worth damaging the reputation of the bank and that was absolutely clear from the top down of the bank however not everyone followed that rule Holland so be the annual windfall from London was a decisive part of Deutsche bank’s profit yph aaman was reliant on his Golden Goose Anu Jane and by 2009 Jane had even been promoted to the board of Deutsche Bank it’s New Year’s Eve 2010 and in Las Vegas Deutsche Bank staged a mega party to Mark the opening of The Cosmopolitan the bank pulled out all the stops shelling out $12 million for an event featuring Jay-Z and Beyonce by the time a buyer was found at the end of 2014 the hotel was running a billion dollar loss how high was the losses can’t I can’t say exactly but it was certainly over a billion ultimately the financial losses reached almost 2 billion by the end of 2010 Deutsche bank’s name was tarnished the world of global Finance now mocked Joe aaman as the man who took too many risks and not just with hotels in Las Vegas [Music]

Deutsche Bank managers driven by greed set it on the wrong track in the 2000s. The collapse played a key role in the financial crisis of 2007/2008. The consequences: billions of Euros in penalties and the decline of a German institution.

The Deutsche Bank, once the flagship of the German economy, had fallen from grace. In the 2000s, the bank was pumped full of risk in the quest for ever greater profits. In their bid to make the institution a global player, Deutsche Bank managers gave their investment bankers a free hand – a move that would end up being a major contributing factor in the financial crisis of 2007/2008. Supervisory authorities are still imposing fines to this day, penalties that now run into the tens of billions.

The victims in all of this are Deutsche Bank customers and shareholders. The share price is hovering around 10 Euros. Twenty years ago, it was around 60 Euros. The documentary shows: The only ones to walk away from this with a good deal were the investment bankers. Many received millions in bonuses year after year, as their greed increased and they paid no heed to the rules and regulations.

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