Banking

The Great Fall of Deutsche Bank – Know the Reasons

It was a regular Monday morning. Employees arrived at the bank’s Great Winchester Street offices. Minutes later, they hear something they never imagined. As many as 18,000 lost their jobs and were asked to leave by 11 am. Their access cards would stop working after that, it was told.

What followed was bizarre. People leaving the premises were shocked and horrified.

At this sudden decision, Deutsche’s chief executive Christian Sewing said: “Let me really emphasize that this is the bitter part of our decisions.” after the massive job axing. But did the bitter decisions end here? No. Tokyo had a slightly different story. Equity traders were dismissed with immediate effect. 

However, the strategy of letting go of thousands did not help the bank as intended. But what led to this decision? This article will tell you why Deutsche Bank has fallen victim to its past, how it got here, and where we go from here.

But a little sneak peek into the past.

The Glorious Past of Deutsche Bank

Deutsche Bank was launched in 1870 with an idea to bring the German state to the forefront of the global trade market. Before this, the German companies relied on French and British lenders. 

Gradually, it forayed into the Asian and the European market. It played a role in building the German industry. The bank was also a reckoning force for redevelopment, reconstruction, and reunification of Europe post World War II. So, With a history so rich, what led to the disgraceful fall. 

In the decade that passed by, several scandals hurt the image and the bank’s reputation badly. Let’s know more about them.

US mortgage transactions

After learning about the Deutsche Bank’s role in residential mortgage-backed securities (RMBS) and other such activities between the years 2005 to 2007, the US investigated the matter. Consequently, the US Justice Department slapped a fine of $3.1 billion in civil penalties and was asked to provide $4.1 billion in relief to the consumers.    

Money Laundering to Russia

A relatively small scandal came to light in the year 2015. The investigations revealed that Deutsche bank used stock transactions to launder nearly $10 billion in Russian currency. The bank was fined £163 million by the UK Financial Conduct Authority and $425 million by the New York State Department of Financial Services based on the accusations of laundering $10 billion out of Russia.

Allegations on involvement in Danske Bank money-laundering scandal

On 19 November 2018, a whistleblower alleged that a large European bank had a role in helping Danske process $150 billion in suspect funds. The money-laundering activities of the bank were under question. Though the whistleblower, Howard Wilkinson, uttered no name, an insider claims that the institute in question was Deutsche Bank’s US unit.

Commodities trading, bribery fine in 2021

In January 2021, Deutsche Bank agreed to pay a fine of more than $130 million. This was for a scheme that involved concealing bribes to foreign officials in countries such as China, Saudi Arabia, and Abu Dhabi from 2008 and 2017. There is another commodities case where the bank spoofed precious metals futures.

Malaysian 1MDB fund

In 2014, Deutsche Bank lent a helping hand to raise $1.2 billion for 1MDB. US prosecutors investigated Deutsche Bank’s activity in a multibillion-dollar fraud scandal involving the Malaysia Development Berhad. 

Jeffery Epstein

The name is enough. When the DFS, New York State Department of Financial Services  imposed a penalty of $150 billion on the bank, their reply was “It was a grave mistake to take Jeffrey Epstein on as a client in 2013.” It was argued that the bank was aware of the criminal activities of Epstein and yet allowed the withdrawals. 

Relationship with Donald Trump

The story does not end here. The relationship with Donald Trump made the bank lose its credibility even more. It was found that over a span of two decades, the bank loaned out 2.5 billion dollars for several finance projects initiated by companies owned by Donald Trump. And this was regardless of default in the 640 mn dollar loan. 

As a result, its share price and the market value have diminished. Deutsche Bank shares have lost almost 3/4th of their value. Even the market capitalization of the bank has dropped to $28.23 B. In addition, the bank has lost investor credibility, which is now reported to be trading 3 to 4 times less. 

Summing up

Several strategies and changes in the past decade, including managerial changes, have not helped Deutsche Bank so far. This brings forth a question, “What is the future for Deutsche Bank. Will it rise like a phoenix, or will it end up in history books.” That remains to be seen… 

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