Enrich discusses how Deutsche Bank changed from a sleepy, provincial bank focused on serving local German companies into a global juggernaut. They were early proponents of using derivatives to hedge positions, and began morphing into a more Wall Street like investment bank. A “blinder’s on, short-term focused, decision making” process led to both its rise and subsequent fall.
Deutsche bank spent 10 billion dollars purchasing Banker’s Trust in the late 1990s, and that led to a complete change of the bank’s culture. He explains how the “great migration” of 1000s of traders from firms like Merrill Lynch and UBS to Deutsche completely changed the nature of the firm’s revenues and power structure. Even the bank’s official language changed from German to English.
The focus on return on equity led to a shift in both clients and risk profile. The bank’s internal supervision — as well as regulators in the U.S. and Germany — failed to adequately stay on top of the massive growth of assets and risk at the bank. Making matters worse was a terrible patchwork of inconsistent computer systems unable to track all of the banks positions. This led to an inability of the bank to monitor in real time (or even quarterly) its own risks.
Perhaps most shocking is how Deutsche Bank became Trump’s sole banker in the 2000s. After Trump defaulted on a loan for a Chicago Skyscraper, he got banned from division (Construction Lending), he somehow managed to become a client of a different division (Private Banking).
Be sure to check out our Masters in Business next week with Simon Hallett, Co-CIO at Harding Loevner, which manages about $70 billion dollars. Hallett is also the owner of Plymouth Argyle Football Club, a League One team based in the city of Plymouth, Devon, England.