
How a Pillar of German Banking Lost Its Way - fforflo
http://www.spiegel.de/international/business/the-story-of-the-self-destruction-of-deutsche-bank-a-1118157.html
======
heisenbit
Deutsche really lost their way. I used to be their customer for 5 years but
then I gave up. Over the past 20 years (roughly what the article covers) they:

\- starting from a more "elite", business customer focus

\- went pioneering into online banking to get younger customers

\- merged the online customers when broadening out online

\- tried to get rid of lower revenue customers

\- bought the Postal Bank (which was focused on low income customers and had a
huge number of them)

\- tried to sell Postbank

The back and forth on the local German banking retail market made no sense
whatsoever. Twice they were eyeing pools of lower income customers (younger,
Postbank), did not fully integrate them and then backed out again.

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maxxxxx
I hope there will be a lesson that a steady business or being conservative is
often a good thing. It seems there is a lot of pressure to grow until the only
way for growing more is to take on a lot of risk or doing unethical things.

~~~
misja111
That is true, but try telling that story to the shareholders. Most
shareholders don't care about long term stability, they just want a profit
this year and then cash out and move somewhere else.

~~~
WalterBright
The stock price is set by the expectation of long term increased value, not
short term. For the simple reason that if everyone is set to cash out at the
peak, there won't be a peak, the stock will tank.

~~~
usrusr
The stock market oracle values a dim chance for massive growth much higher
than a very large likelihood of continued existence at current levels.

Overoptimistic money drives out realistic money and then suddenly the
corporation has to fulfill expectations it might never have actively
encouraged. Or else you lose at capitalism, whatever that means.

The only chance to not play that game is to have patient majority owners who
are fully willing to ignore temporary devaluation when disillusioned optimists
jump ship.

~~~
WalterBright
Riskier investments tend to have lower current values, which prices in the
risk.

But for a more meta point, if you believe you are smarter at valuing stocks
than the market is, then you can make a fortune at it if you are correct. Or
even just mostly correct. You don't need to convince me or anyone else.

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hackles_raised
It was a horrible place to work.

From a technical perspective they were completely incompetent, refusing to
consider that a plan put in place years before might now be invalid.

Investing in hardware and the associated data center, years before a system is
due to be deployed 'because my bonus depends on it'.

Outsourcing gone mad.

Obvious quid pro quo arrangements between management and vendors.

There were good people there but they were ignored or marginalized by the
Frankfurt crowd.

Most of the technical staff would not get though an intern technical interview
at Apple / Google / ...

I tried to build an internal team in Cary to try and prove that outsourcing is
not the answer, but it was pointless, the staff available were totally and
obliviously incompetent, one of them refused to participate unless we used
Erlang, I know Erlang, I really like it, so I quizzed him on why he wanted to
use Erlang, you know the outcome, he had no knowledge of OTP, and only a
cursory familiarity with the language, and yet I was asked to let this guy
lead my development team.

Try hiring technical talent into that environment. They did pay well though.

I bailed and headed back to the valley.

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amq

      This is the bank's situation, 146 years after its founding. Once a symbol of Germany
      -- Germany Inc. -- and the country's financial pillar. Its managers were respected, admired
      as people who lived up to the country's values and expected the same of their employees.
    
      Those times are gone. Deutsche Bank as we once knew it is dead. As one of the bank's former
      senior managers said, the bank stumbled into a "Darwinist niche," a place where there were
      no more competitors and no more enemies. And the gentlemen at the top of the company became
      complacent and inattentive.

------
rahrahrah
I'm not too familiar with the German culture. Can someone explain to me what
is this "German provincialism" that they talk about? Do Germans see themselves
as provincial? Does anyone else see them as provincial?

~~~
zuzun
Have you ever heard of the German Mittelstand? [1] Family-owned companies,
long-term and low-risk business strategies, social responsibility, regional
ties... I think that's the kind of provincialism the article talks about. Not
bad, just boring.

Deutsche Bank wanted to become a global player. Doing investment banking in
New York and London instead of giving a small loan to Herr Müller's crankshaft
oil seal factory in Hintertupfingen.

[1]
[https://de.wikipedia.org/wiki/Mittelstand](https://de.wikipedia.org/wiki/Mittelstand)

~~~
douche
Lol, Hinterupfingen. If my German isn't a complete wreck, I believe that
implies sticking a digit up the derriere. Similar to our Bumfuck, USA

~~~
tscs37
Sadly, no.

Hintertupfingen is merely a invented place which is most removed from the
happenings in the rest of the world.

Being from Hintertupfingen implies being somewhat of a Redneck or atleast
uneducated of what happens in the world.

~~~
robk
You're both in agreement.

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chollida1
I think its important to note that they didn't end up this way because they
were stupid or power hungry.

Like alot of companies, they made decisions that made sense at the time that
ended up having poor long term consequences.

When they decided to really grow it was due to a couple of things..

1) Their competitors were all doing the same thing and they almost needed to
grow their investment arm and international presence just to stay in business.

It used to be that Audi, Porchse etc would come to them for basic loans etc
and business was good. But as these firms grew internationally they also
needed a bank that did the same.

Audi sells in Brazil it needs a bank with a presence there as well. And along
comes the big american and European banks who start selling themselves to
Deutsche's current clients as a one stop shop who can do what Deutsche does
but also all these new things that international modern companies need.

A company needs to get a currency or interest rate swap, well Goldman Sachs
can do that, so Deutsche followed suit.

From this perspective its easy to see how they started down the road they did.

And once you start building out a international team of investment bankers and
traders that means you're now competing for talent with the rest of the big
players.

So how do you hire the best traders/investment bankers?

You pay them like everyone else does, which is to say you have to pay
them..... alot.

You have to provide perks like New York/London/Tokyo offices and the ability
to trade the hottest products and markets.

You need to let your traders make money like other firms do or they'll just
leave for those other firms.

All just to keep your existing clients.

And before long you are just like everyone else.

Then in the mid 2000's during a huge bull market you have one of wall streets
stars Boaz Weinstien
([https://en.wikipedia.org/wiki/Boaz_Weinstein](https://en.wikipedia.org/wiki/Boaz_Weinstein)
or read "The Quants") running your derivatives desk. And they made money hand
over fist..... at the time.

Now the funny thing about bull markets, is that even bad trades can make money
during them because everything is up and to the right.

And even if you think you are putting on too much exposure, tough, remember
that so is everyone else and if you stop, then the good traders and bankers
quit and go to competitors who will let them make money.

It's sort of like raising money as a startup in frothy markets. You'd just
better raise money because if you don't and all your competitors raise 20
million then even if you're better they'll often win because they can survive
longer than you.

It just happens that Deutsche didn't quite understand the game that was eing
played, and when the music stopped, they were holding the bag so to speak.

~~~
blub
According to the article they were both stupid and power hungry and yet you
make it sound like they accidentally manipulated Libor or bet against their
own clients.

Should we feel pity for them or what? They could have expanded AND kept some
control of what the investment bankers were doing.

Other banks managed to reduce their exposure while DB was blisfully sailing
ahead, so your assertion that "so is everyone else and if you stop, then the
good traders and bankers quit and go to competitors who will let them make
money" is incorrect. This is mentioned in the article.

It also says right in the article that traders were amazed how poor the
oversight from HQ was.

~~~
chollida1
Wow, I don't normally respond to replies but it looks like you tried as hard
as you could to take the most negative outlook possible on my post.

I mean you completely failed in any way to give my note the principle of
charity. Have a look:

[https://en.wikipedia.org/wiki/Principle_of_charity](https://en.wikipedia.org/wiki/Principle_of_charity)

I really don't know how to respond to that:(

My point was that their transformation from a regional bank into an
international bank wasn't just a power grab or kingdom building but a very
natural progression, that lots of their competitors, to keep their existing
customers.

it then turned out that one of their new areas, derivatives desk, was minting
money like crazy so it became tougher for them to reign in that team, and as a
side effect the risk that team generated, until it was painfully clear that
they'd gone too far.

Their problem wasn't in the idea of growing and transforming the bank but in
the implementation, and I believe I laid out in pretty easy to follow detail,
why they went the way they did.

~~~
blub
I reread your original message and the underlying theme seems to be the
inevitability of ending up more or less in a situation similar to the one of
today.

I don't believe the natural progression theory _fully_ explains what happened
and I was trying to emphasise that the article contradicts your theory in
several places.

In particular: * their failure to learn the lessons of 2008, which most other
banks did learn.

* several power struggles for key leadership positions

* outright incompetence in risk management.

To summarise: your analysis about the forces at play is likely correct.
However one needs to mix in incompetence and greed to get today's result,
something which you explicitly excluded in your first sentence.

I am outraged at what happened (I am a Deutsche customer) and some of that
slipped into my message. I do apologize for that.

------
mathgenius
The last time I visited Wall St., in 2015, I noticed a giant inflatable rat,
directly in front of the Deutsche bank building. I figured someone was pissed
off about something.

~~~
Dowwie
That rat gets used by labor unions across all industries. :)

~~~
candiodari
Cool ! I never knew the US actually has a sort of tradition for this sort of
thing. Very cool.

[http://mentalfloss.com/article/28466/story-behind-giant-
infl...](http://mentalfloss.com/article/28466/story-behind-giant-inflatable-
union-rat)

~~~
geon
The wall Street bull is a bit similar.
[https://en.m.wikipedia.org/wiki/Charging_Bull](https://en.m.wikipedia.org/wiki/Charging_Bull)

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seanpquig
Lovely long-form piece. Seems very analogous to the choice many tech companies
face: focus on growing a moderately successful, proven model, or lever up to
the gills with VC money and shoot for the moon. The later being sexier and
higher status, but also risking catastrophic failure.

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Pica_soO
One has to view it from the long term perspective. Germanys success doesent
seem very stable from the inside. The age pyramid is similar to japan, and a
working social system + lots of future retirees means, there is a lot of
unseen future debt here.

The main industry - the car industry is flailing and failing, by falling
behind when it comes to e-mobility (except for BMW, but thats just the premium
segment). Because of that perfectionism streak in engineering and a attitude
against "untouchable" aka not real products, we suck at Software, which shows
in particular when you look for example on the digital entertainment market.
Pols have the Witcher and lots more, Czechoslovakians have Arma and lots more-
what do we got? We make chips and databases- both important fields- but both
closer to the german mindset.

Europe is falling apart as we speak, and the inability to fix it shows, as
politicians promises the glue that held it together is loosing its binding
power. They should have abandoned the brussel parliament, and made a virtual
parliament from all the national ones- in this way unifying the whole
continent, by having a voted for legislator- that actually has something to
say to those who rule the continent.

Also germans democracy suffer from the same symptoms as the US- aka the partys
kill it with sleeping pills. The media and they political party system) does
not allow and does not show any hard debate (reason: "the citizens dont like
it when mummy and daddy fight"), but this creates the impression that the
voters causes are unheard and not worth fighting over for. It doesent show who
fights for them, and as the eternally same faces deliver the eternally same
messages (Too Long Did Not Change; TLDNC: "There is going to be a little bit
of hardship, but its going to be good, once we are through it, we take the
citizens problems very serious, we will take care of all your problems, as
long as you dont have any.."). The state is rife with untouchable special
interest groups who basically degenerated to something similar to the
regressive left in the US. Lobbyism is even more of a problem- the state
literally allows to hire company employees into ministry's, to write on the
laws legislating themselves.

While all this is going on, the citizens never get a chance to vote a head of
this hydra, thus some "populist" alternative has formed, which is going to win
the next Vote, and similar to France is going to rip Germany out of the heart
of Europe. Which is a shame- in a world where the big bullys push you around
on the schoolyard- being small has lost all the comfort remembered from the
cold war.

If you have all this in mind and a picture of the outside world, germanys
strategy seems like a long term suicide- and what do you do if your own
strategy is failing? You blindly copy whatever strategy the successful
competitors employ - of course without understanding whats at its core
(careful risk management).

I wouldn't wonder if something similar at some point happens at the German
software industry (mainly embedded electronics and databases). Because silicon
valley seems so much more successful, blindly try to copy the structure and
place some German engineering in it. Then wonder why you always get
incremental improved products way to late, instead of brittle cutting edge.
Anyway that's the state of the nation, which spawned this bank.

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atemerev
I used to work with DB throughout the 2000s. Occasionally, I was surprised on
the levels of incompetence of middle management. It isn't uncommon in
investment banks, especially when the economy is good enough, but DB upped it
to the whole new level.

~~~
gruez
examples?

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CarlsonKeith
Deutsche lost its way but it was a good stock to buy at $12

