Another big crash is being played in 2017: Is the world heading to a decade-cycle of credit crunch once more?

Another big crash is being played in 2017: Is the world heading to a decade-cycle of credit crunch once more?
by Sando Sasako
Jakarta, 5 August 2017

1997, the Asian financial crisis
2007, the subprime mortgage crisis
2017, as it now.
Ten years on, we’re getting into another debt crisis
Deborah Orr, @DeborahJaneOrr
Friday 4 August 2017 18.31 BST

The early signs of the 2007 credit crunch are back. With wages stalled and prices rising, more and more are turning to loans and plastic cards to make ends meet
Payday loan sign in shop window
‘Recent regulation has lessened the ability of payday lenders to ruthlessly exploit the vulnerable. But what regulation cannot stop is need.’ Photograph: John Giles/PA

We are 10 years on from the start of the financial crisis, and unsecured consumer debt has reached more than £200bn for the first time since 2008. It’s up 10%, year on year. The best that can be said of the matter, as compared to the pre-crash debt boom, is that at least there are worries about it.

The Bank of England and the credit ratings agency Moody’s are among those who have warned that the situation could be problematic. Which seems like an understatement. These guys are talking about big-picture risks to the economy, which generally adores debt. But at street level, the Financial Conduct Authority warns that one in six people with debt on credit cards, personal lending and car loans is in trouble. That’s 2.2 million stressed-out individuals.

A TUC report, Britain in the Red, highlighted this issue a year ago. It suggested that the problem is greater than official figures show, with 3.2 million households in problem debt – defined as spending more than 25% of income on unsecured loans – and 1.6 million households in extreme debt, paying out more than 40% of their income. It’s horrific.

One of many egregious examples of victim-blaming in the wake of the financial crisis was the idea that everyone in Britain was responsible for the mess, all of us having decided to party recklessly only to greet our hangovers with amazement. The general idea was that consumer debt was providing the nation with designer handbags, cashmere jumpers and vintage champagne. Apparently. And if there’s one thing that similar accusations could be made about now, it’s cars.

The cliche was true, for some people. For those who had bought their homes before or early on in the post-1997 property boom, a quick remortgage was the easy way to buy all sorts of things. But those who bought near the top of the market – and who are still buying – may find that if interest rates go up, financial trouble could quickly follow. The Insolvency Service warns that a 1% rise could leave 18,000 people bankrupt.

Attitudes to credit card debt did change in the wake of the crisis, as lenders hiked their rates. Now, zero interest deals are abundant again. Lots of people manage their cards by simply transferring their debt. Data from January suggests that 43% of credit card users had a zero interest deal. But that still leaves millions in persistent debt. Lenders want customers who only manage the minimum payment every month, and they’re getting them.

Personal loans remain a problem too. Before the crash, the payday loan industry wasn’t the behemoth it quickly became. But even then, lots of people were already borrowing just to make ends meet. In the boom-time Britain of 2006, a quarter of a million people were already using “short-term” loans. Recent regulation has lessened the ability of payday lenders to ruthlessly exploit the vulnerable. But what regulation cannot stop is need. In 2017, even fewer people can manage on the money that’s coming into their household. Debt, often, is not providing luxuries but basic necessities.

It doesn’t take a genius to work out why. Wages have stagnated, while prices are rising inexorably. After 2007, households did put off the purchase of new items, but that can only go on for a certain amount of time. Things get old. Things break. Things need to be replaced. Many personal loans are on rent-to-buy deals, with modern necessities such as white goods acquired this way more and more. People don’t save up for these things any longer – not least because low interest rates don’t encourage saving at all. People are saving less, so fewer households have a financial cushion when big-ticket items are needed.

The welfare state is used to punish people for being dependent, forcing them into debt – because they have no choice

But the biggest problem, of course, is our skewed economy, in which wages simply don’t cover the cost of living. While low pay has been a problem in the UK for a long time, there were at least, before austerity, attempts to subsidise the low-paid through tax credits. Now, instead, it’s all stick rather than carrot. The welfare state is utilised as a way of punishing people for being dependent, forcing them into accepting poor pay and conditions – and debt – because they have no alternative.

In Britain, since the crash, something grotesque has happened. Government tax credits have pretty much been replaced by unsecured loans. It’s one of the more counterintuitive privatisations to have come in the wake of the banking crisis, and it has happened in a fairly covert and atomised way. Result? The UK is, again, still very much a place where the rich get ever richer and the poor get ever poorer.

• Deborah Orr is a Guardian columnist

Bank of England warns of complacency over big rise in personal debt

those who have warned
Britain in the Red
18,000 people bankrupt
Data from January
The day the credit crunch began, 10 years on: ‘the world changed’
Larry Elliott and Jill Treanor
Thursday 3 August 2017 07.25 BST

Key players in the drama recall the day that sparked the first UK bank run in 140 years and heralded a global financial crisis
Queues at a Northern Rock branch in Kingston, west London.

It had ‘literally run out of money’: Queues at a Northern Rock branch in Kingston, west London. Photograph: REX/Shutterstock

The ninth of August 2007 was the first day of Mervyn King’s holiday. The governor of the Bank of England spent it at Lord’s cricket ground where he was interviewed by the former England cricket captain Michael Atherton. While Lord King was watching the cricket, the French bank BNP Paribas announced it was freezing the assets of hedge funds that were heavily exposed to the US sub-prime mortgage market.

It was the first and last day of King’s holiday. He would not have another for several years. Within six weeks, members of the Bank’s court – its oversight body – were being whisked into the back entrance of Threadneedle Street in a people carrier with blacked-out windows to be told that money was haemorrhaging out of Northern Rock.

For three days in the middle of September 2007, queues formed outside branches of the former building society – the first run on a UK high street bank since the 1860s.

The writing was on the wall for Northern Rock from the moment the markets turned sour on 9 August. Its business model relied on it being able to borrow money from other banks and investors, and that was no longer possible in the panic-stricken conditions of August 2007, when none of the banks trusted each other.

Recalling the drama a decade on, King said Northern Rock “literally ran out of money” even though on paper it appeared to be in a stronger position than any of its UK rivals. It was taking too many risks and had no alternative sources of funds if the markets dried up.
Mervyn King in 2008. Photograph: Alessia Pierdomenico/Reuters

“This meant that any shock to confidence meant they were doomed. They relied on at least half their financing from selling mortgages. They had to find other sources of funding – there weren’t any. Their business model was dead,” said King, noting that there was something “deeply wrong” with the regulatory framework.

Alistair Darling, the chancellor of the exchequer, was also on holiday on 9 August, in Majorca. Lord Darling remembers spotting reports in the papers about the problems at BNP Paribas and regional German banks. “I rang the Treasury,” Darling said. “It was August. There was one man and a dog in charge of financial stability.”

Darling’s feeling was that if there was a problem with German and French banks there were probably problems in the UK waiting to surface as well. He asked for a list of which ones might be vulnerable. It took the Treasury’s skeleton team almost three days to reply but when they did the name at the top of the list was Northern Rock.

The man in charge of Northern Rock was Adam Applegarth, whose aggressive expansion plans for the Newcastle-based lender had made him a stock market darling. For Applegarth, 9 August was the day “the world changed”.

Since the run on Northern Rock, regulation and supervision of banks has been strengthened. Crucially, the UK has put in place a system to deal with failing banks, something that wasn’t available in the summer and early autumn of 2007. Andrew Bailey, who played a crucial role in unravelling Northern Rock, said one of the lessons was to understand what banks were actually up to.

Now chief executive of the Financial Conduct Authority, Bailey said: “If you’re a supervisor you need to understand the business model … The root of it is still how are you earning your money, how are you managing your balance sheet?”
Andrew Bailey. Photograph: Bloomberg via Getty Images

Northern Rock operated what Bailey described as warehousing. The old model of banking was based on taking in savings and lending them out in loans. But this relied on banks being able to attract enough depositors to support their lending ambitions. Northern Rock used its mortgages to support its lending by bundling them up into bonds, which it then sold to the financial markets. This worked as long as the international money markets wanted to buy the bonds.

Northern Rock, Bailey said, had a 10% share of the stock of UK mortgages but was gaining market share rapidly in the six months before it failed, advancing 20% of new UK home loans. “One day they were inevitably going to run out of road,” said Bailey.

Its warehousing model meant it had to sell bonds every three months – and the next sale was due in September 2007. The Bank told Northern Rock it was prepared to act as lender of last resort but this did not emerge until 13 September, when the BBC reported that Threadneedle Street was operating behind the scenes to keep it afloat.

Paul Myners was a member of the Bank’s court. As news was breaking, he recalls court members being told to gather at McDonald’s at Liverpool Street station to be ferried into the Lothbury entrance to the Bank. “We were told there was a massive run on Northern Rock,” said Myners, who was made a peer a year later when the Labour government appointed him City minister during the 2008 banking crisis.
Paul Myners. Photograph: Carl Court/AFP/Getty Images

News of Threadneedle Street’s intervention was intended to be a calming influence. But savers took to the internet to try to withdraw their cash and queued round street corners to get their hands on their savings. Northern Rock had fewer than 80 branches, but the 24-hour news coverage meant the queues were broadcast on television scenes in living rooms around the UK and across the world.

The next day, a Friday, King and Darling attended a meeting of EU finance ministers and central bank governors just outside Lisbon. “I was standing with Mervyn looking at Sky News, which was on every available space, and just looking at the queues, which were getting longer,” said Darling “I thought that when we made the announcement [about the lender of last resort facility] it would reassure people. It had the opposite effect.”

King said there was no mechanism to seize control of Northern Rock and the guarantee on savers’ deposits – of £35,000 – was not large enough. On the Monday, the government responded to a third day of queuing with an announcement that no Northern Rock saver would lose money.

“Darling was annoyed when I said to him it is rational for people to join the run but there was a point to my comment,” King said, who recalls that some customers left with cheques rather than cash. “It is rational to join the run and you will stop it only when you give a government guarantee to those deposits,.

“Nothing was done until the Monday afternoon by which time all the psychological damage was done.”

Darling, whose relations with the governor became increasingly strained, said he was reluctant to guarantee all deposits for fear that it would in effect be underwriting the entire banking system.
Alistair Darling in 2007. Photograph: Shaun Curry/PA

The obvious way to deal with Northern Rock was to nationalise it – a fate that was unpalatable to a Labour government that had abolished the “clause four” pledge to take control of the means of production as a sign of its modernity.

There was also no formal mechanism for doing so. After a long period without a financial crisis, putting in place a regime to tackle bank failures had not been a priority. The shortcomings of Labour’s tripartite system of regulation – and the tensions within it – were exposed. Powers were shared by the Treasury, the Bank and the new Financial Services Authority after the changes in 1997 when the central bank was given control of monetary policy but stripped of oversight of the big lenders. The Bank’s focus became hitting an inflation target and setting interest rates.

Myners – who took leave of absence from the court to join an ultimately unsuccessful hedge fund bid for Northern Rock – is scathing about the Bank’s response. “We’ve got to be clear the Bank and the governor failed very badly in anticipating what was going on. At times the governor appeared frozen – unable to give a lead,” he said.

King argued that the Bank was doing its job and made it clear to the banks that the money was there if they asked for it. He said the Bank pumped more money into the financial system than any other central bank, but did not shout about it. “We probably should have spoken out more at the time about what we were doing … We paid a price for that. We were actually putting money into the financial system.”

It took until February 2008 for Northern Rock to be nationalised and another seven months for Applegarth’s words in the autumn of 2007 – “it must be difficult for other banks too” – to appear prescient when the collapse of Lehman Brothers put every bank under the spotlight.

“In the end the big story, when you look back 10 years, is none of this made any difference at all to the ultimate outcome of what was wrong with the banking system,” King said. “Whatever we did made no difference to the fact that in the autumn of 2008 the entire banking system failed. Although Northern Rock was a great story in the UK it was little more than a bubble on the boiling sea of the failure of the banking system crisis in 2008.”

abolished the “clause four” pledge
after the changes in 1997
collapse of Lehman Brothers
Debt bubble returns millions to days of 2008 crash
Shane Hickey
Sunday 18 June 2017 00.05 BST

Advisers call for action as growing numbers struggle with their bills
Someone holding a wallet with banknotes in it and some coins.
The rise in inflation will put even more pressure on cash-strapped households. Photograph: John Stillwell/PA

Charities and financial advisers are calling on the government to use the Queen’s speech to address the “bubble” of unmanageable debt that households are rapidly accumulating.

Unsecured consumer credit – including credit cards, car loans and payday loans – is this year expected to hit levels not seen since the 2008 financial crash.

There has been concern in the Bank of England that consumer spending is being underpinned by debt, amid comparisons to the run-up to the financial crash. In addition, figures published last week show inflation reached a four-year high in May, meaning shopping is getting increasingly expensive, further intensifying the squeeze on household budgets.

Debt advisers are urging the government to make good on fulfil a promise in the Conservative manifesto to introduce a scheme where those in serious debt are protected by law from further interest, charges and enforcement action for up to six weeks. Many campaigners would like to see this extended further, to up to a year.

“It would be excellent if the government in the Queen’s speech committed to helping households who are struggling with debt. It really is one of the great problems of the time that politicians have to grapple with,” said Peter Tutton, head of policy at debt charity StepChange. “We are seeing more and more households struggling just to make basic ends meet – to pay their rent, to pay their council tax, to pay their gas bill. We would like to see the government say, ‘we need to do something about this’.”
Peter Tutton of charity StepChange says an increasing number of people are struggling to make ends meet.

The charity estimates that 2.9 million people in the UK are experiencing severe financial debt in the aftermath of the recession. One reason is that many who lost their jobs found new jobs that were less well paid.

Sara Williams, the author of Debt Camel, a blog advising on money problems, said: “The recent large increases in consumer credit … look alarming to debt advisers – very much like a bubble building up.”

Martyn James, from online complaints service Resolver, said the website had seen a sharp rise in the number of grievances about financial difficulties over the past few months. “There is a large amount of credit out there and a large [number] of people who are trying different types of credit as a way to keep afloat,” he said.

Store cards in particular appeared to be re-emerging as a problem, James added. These cards are often offered with incentives by retailers, such as an introductory discount at point of sale, although interest rates tend to be far higher than on normal credit cards.

“Undoubtedly, there are huge numbers of people relying on credit and we are hearing that many of them are concerned that they will not be able to pay if interest rates go up slightly, or if there is a rise in their mortgage rate. So people are very much up to the line,” he said.

Last week the Bank of England’s monetary policy committee left interest rates on hold but it took City analysts by surprise because three of the eight committee members wanted to raise them. Analysts had expected only one member to vote for a rise, which would push up the costs of mortgages and other credit for many borrowers and could lead to further repayment problems.

The Financial Ombudsman Servicecorrect reported last week that complaints about payday loans had risen sharply and were nine times higher than two years ago. It received 10,529 new complaints about these short-term credit products in the 2016-17 financial year. This was a rise from 3,216 complaints during the previous year.

Tutton said that while there was generally more credit available to consumers, the interest rates were not necessarily cheaper. “There is a picture here of a large group of households struggling with their fingers on the edge,” he said. “Credit is becoming more available. Our worry is that if households are already vulnerable, you put those two things together and it creates a different problem.”

The Treasury did not respond to queries about whether the issue will feature in the Queen’s speech on Wednesday.

unmanageable debt that households are rapidly accumulating
published last week show
More than 1.5m UK households in extreme debt, says TUC report
Patrick Collinson
Tuesday 23 August 2016 00.01 BST

Britain in the Red study finds that people are struggling to make repayments as wages have fallen since financial crisis
Cracked and torn £20 notes
About 1.6m households are in ‘extreme debt’, paying 40% of their income to creditors. Photograph: Tim Gainey/Alamy

About 1.6m UK households are living in extreme debt, according to a report by the TUC, which says official figures underestimate the intense burden of repayment on many families and individuals.

Contrary to official data, which suggests that households have been repaying debt accumulated before the financial crisis, the Britain in the Red report says households are finding it harder than ever to cope as wages have fallen.

“More than 1m families with a household income below £30,000 are in extreme debt and ongoing wage stagnation is making the problem worse,” the report says.

Total unsecured debt, including car loans and credit cards, but excluding mortgages, for UK households rose by £48bn between 2012 and 2015 to £353bn.

As wages declined, the real burden of repaying debt became tougher. The TUC said 3.2m households are in problem debt, defined as spending more than 25% of total household income on unsecured debt repayments.

About 1.6m households are in extreme debt, paying out 40% or more of household income to creditors.

The problem is growing fastest among the working poor, people with jobs but insufficient pay to stay financially afloat. OECD figures show that UK real wages fell by 10.4% between 2007 and 2015, making the task of keeping up debt repayments harder.

In 2015, 9% of low-income households with an adult in employment were in extreme problem debt, almost double the figure of 5% in 2014, the report found.

The TUC general secretary, Frances O’Grady, said: “Families can’t continue relying on credit cards and loans to get by. But with the average wage still worth £40 [a week] less than before the 2008 crash, lots of families have little choice.

“Higher wages must be at the heart of the government’s economic plan. We need a return to proper year-on-year pay rises and a higher national minimum wage.”

The Unison general secretary, Dave Prentis, said: “Many of those affected by debt will be public service workers who have suffered eight years of zero pay rises, followed by a government-imposed cap on earnings.

“This report rightly draws a link between increased debt and stagnant wage growth, at a time when rent and transport costs continue to rise. Many families are having to make choices between paying the rent and feeding their kids.”

Debt charities say the figures in the report chime with their experience of increasing demands.

Peter Tutton from the StepChange debt charity said: “Every week we see thousands of households struggling to keep up with their essential bills and credit repayments. When budgets are stretched to the limit, even a small income shock can push people into serious financial difficulty.”

Martin Lewis of has partnered with StepChange to call for breathing space for people with serious debt problems.

The scheme would see people who seek advice for debt problems given a period of six months to a year in which interest and charges are frozen, and enforcement action halted, to give them time to get advice and sort their finances.

Tutton said: “Too many households are relying on credit to get by and this massively increases their chances of falling into severe problem debt.

“The government could act quickly to give better options to hard-pressed households by completing its overdue review for a ‘breathing space’ scheme.

“Such a scheme would help people regain control of their finances and stop temporary setbacks turning into long-term, devastating debt problems.”

Cash handouts are best way to boost British growth, say economists
real wages fell by 10.4%
call for breathing space
The Deutsche Bank Downfall
How a Pillar of German Banking Lost Its Way
By Ullrich Fichtner, Hauke Goos and Martin Hesse
October 28, 2016 11:02 AM

For most of its 146 years, Deutsche Bank was the embodiment of German values: reliable and safe. Now, the once-proud institution is facing the abyss. SPIEGEL tells the story of how Deutsche’s 1990s rush to join the world banking elite paved the way for its own downfall.

Part 1: How a Pillar of German Banking Lost Its Way
Part 2: Gordon Gekko, or How It All Started
Part 3: Edson Mitchell and the 50 Bandits
Part 4: Life is a Construction Site
Part 5: Ackermann and the Arsonists
Part 6: Rules Are for Fools
Part 7: Easy Come, Easy Go
Part 8: Not a Nice Place

Greed, provincialism, cowardice, unfocused aggression, mania, egoism, immaturity, mendacity, incompetence, weakness, pride, blundering, decadence, arrogance, a need for admiration, naiveté: If you are looking for words that explain the fall of Deutsche Bank, you can choose freely and justifiably from among the above list.

The bank, 146 years after its founding, has become the target for all manner of pejoratives, and not just from outside observers. All of the above terms were used in interviews held during months of reporting into the causes of the downfall of Germany’s largest financial institution. They popped up over the course of several hours of interviews with four Deutsche Bank CEOs, three former and one current.

And they were uttered in interviews with eight additional senior bank managers and board members conducted over the course of several years, from the 1990s until today, and in meetings with captains of industry who know the bank well and during encounters with major stakeholders. More than anything, the disparaging words come up frequently in interviews with those who have worked or still work at the bank as customer service advisors, as branch managers or in positions lower down on the food chain.

What we have found in the course of these myriad interviews — combined with the hours spent analyzing bank balance sheets, thousands of pages of files, committee meeting minutes and archive material — is that the collapse of Deutsche Bank is the result of years, decades, of failed leadership, culminating in the complete loss of control of the company by top managers during the period between 1994 and 2012.

It is a story about how Hilmar Kopper, Rolf E. Breuer and Josef Ackermann, the leaders of Deutsche Bank during those fateful years, essentially turned over the bank to a hastily assembled group of Anglo-American investment bankers before Anshu Jain, the prince of these traders, rose to the top and spent three more years sailing the bank full-speed-ahead into the shoals.

It is also a story of how these bank heads, along with numerous other members of the management and supervisory boards, stood aside as Jain and the many other new investment banking heroes modified the staid German financial institution to serve their own purposes — essentially looting it and robbing it of its very soul — without leaving behind a better, stronger bank.

The subject is vast and convoluted, given the many aspects and paradoxes that come with the decline of such a large financial institution. One of those is the fact that, even as Deutsche Bank is rapidly losing value, it is still seen today as the largest systemic risk for the global finance world. Every detail in the sequence of its decline is controversial, partially because the financial world still considers it normal that nobody take responsibility for anything but themselves. All of them are most concerned with painting their own role in the best light possible and presenting the decisions they made as the only ones possible at the time.

But their claims must be examined critically. When looking back at past decisions, one can easily seem like a know-it-all, but it’s just as inappropriate to fall prey to historical relativism. When a bank like Deutsche, once an icon of respectability and solidity, transforms into a caricature of “The Wolf of Wall Street,” something must have gone wrong and someone must have been responsible.

And there are people who deserve blame: management board spokesmen (the bank’s equivalent to a CEO before a true CEO leadership model was introduced in the 2000s), members of senior management and advisory board members over the course of several years. Their leadership failures were not primarily the result of professional incompetence, since the people involved were and are extremely well educated, often proven professionals with significant amounts of experience. The source of their mistakes lies elsewhere, in cultural factors and psychological disposition.

The German-ness of Deutsche Bank also had a significant role to play over the years. It looks as though Deutsche Bank managers wanted to free themselves from Germany’s reputation for provincialism — and went so overboard the consequences can still be felt today. Because once they successfully managed to expunge everything that was German about the bank, it suddenly seemed helpless and empty, aimless and confused.

Deutsche Bank is broken. It might be able to extract itself from the 7,800 lawsuits it is currently involved in, or it may shrink to the point that it will no longer pose a systemic risk, or it may manage to find investors to help it scrape together sufficient capital to fulfill legal requirements. In the most extreme case, it may even be bailed out by the German state. But it is broken nonetheless when compared to that which it once was: a brand, a symbol, a German icon.

It may sound strange to say that a bank needs a home as well as a strong domestic market, but Deutsche Bank’s name carries weight in the world. The clichés about Germans being upstanding, efficient and competent are alive and well in Asia and America. It is an image that Deutsche Bank promulgated even after it had long since pulled up its roots — even after senior managers had begun making clear to employees and clients alike that they found their bank’s provincial origins a bit embarrassing. It was a time when their work saw them commuting between Singapore and Los Angeles, Cape Town and Beijing — and when the needs of the global elite were more important to them than those at home.

On Thursday, John Cryan, the bank’s new CEO, presented a surprisingly positive quarterly report. The bank posted a 256 million euro profit, compared to analysts’ expectations of a 949 million euro loss. Even so, the bank has left behind a rubble-strewn landscape that still hasn’t been cleaned up years later. And analysts are nervous. Will the situation calm down? Or will it get even worse?

But even though this week people will focus on the bank’s recent failures, its decline didn’t begin yesterday, or in 2007, or 2008, but as a lofty dream more than 20 years ago.

In a June 1994 meeting at the Deutsche Bank branch in Madrid, Hilmar Kopper, then Deutsche Bank chairman of the board, resolved together with a handful of senior managers to transform the Frankfurt-based concern into a globally operating investment bank. The move was intended to propel the bank upwards, but after a few good years, the slide began — one which continues to this day.

I. Performance without Passion

A visit to Deutsche Bank’s 2016 shareholders’ meeting.

On the morning of May 19, 2016, Deutsche Bank investors both large and small were gathered at the Frankfurt convention center. There were grumblings that they are getting poorer by the day. The bank was still not doing well. Shareholders were streaming into the main entrances for this year’s shareholders’ meeting. In the back, the VIPs were driving up in sedans — senior managers and board members. They were tasked with talking about what has been an extremely bad year.

The institution had lost 6.8 billion euros and was stuck deep in crisis which could threaten its very existence. Paul Achleitner, chairman of the supervisory board, received sarcastic applause when he took the stage, but nevertheless held a self-satisfied speech. He looked well-rested and said at the end of his speech that it was worth fighting for Deutsche Bank. For him, at least, that was undoubtedly true.

Jürgen Fitschen came up next to bid farewell — and his speech was met with only scattered applause. For years, for decades, he had been part of the bank’s senior management, working in such far-flung places as Bangkok, Tokyo, Singapore and London. Ultimately, he became co-CEO with Anshu Jain and led the bank’s “cultural change” for the last four years. He always seemed like the last remaining source of respectability at the bank. On this day, though, he seemed rather colorless.

The bank’s “cultural change” campaign was meant as a return to values, a reminder that the bank’s history could still be inspiring, but it coincided with a flood of lawsuits and damage claims and the term “cultural change” came to be seen as a bad joke. Fitschen’s speech was interrupted by jeers. One man screamed at him from the audience, but it wasn’t clear what he was saying.

The meeting wouldn’t make any more sense to the uninitiated. Deutsche Bank’s 2015 annual report was full of enormous, inconceivable numbers. The balance sheet total was listed at 1.6 trillion, with 101,104 employees being paid at 2,790 branches in 70 countries. There were, the statement notes, 561,559 shareholders in 2015 and, on the Dec. 31, 2015 cut-off date, 1.38 billion shares on the market, of which 7.8 million were traded each day at the stock market in Frankfurt. How was it possible that such a firm was standing at the precipice?

Shareholder representatives took the stage. That moment was the highlight of their year and they strutted up to the stage before the full house. They used terms like “rat catchers” and “Augean Stables,” a reference to the Fifth Labor of Hercules, which required him to shovel manure out the king’s cow stalls. The angry men spoke well beyond the eight minutes they had been allotted and accused managers of having created the atmosphere that made much of the fraud possible. They said the bank had been plagued by decades of mismanagement and was in need of restructuring. They took the pay structures to task and mocked the “cultural change.” Indeed, the meeting wasn’t unlike several past shareholders’ meetings. And then lunch arrived — time for the stakeholders to calm themselves at beautifully laden buffets.

John Cryan, the bald-headed CEO of the bank, chaired the event. He was a better speaker than either Achleitner or Fitschen and was a calming presence. He spoke German, as the head of Deutsche Bank has always been expected to do — and something that only one CEO, Anshu Jain, the cosmopolitan from London, refused to. At the last shareholder meeting he presided over as CEO in 2015, interpreters translated his speeches — and it was, as all those present understood, a sign of deep contempt for that which is referred to here as “German culture.”

Deutsche Bank
The Deutsche Bank Downfall
How a Pillar of German Banking Lost Its Way
By Ullrich Fichtner, Hauke Goos and Martin Hesse
October 28, 2016 11:02 AM

Part 2: Gordon Gekko, or How It All Started

Part 1: How a Pillar of German Banking Lost Its Way
Part 2: Gordon Gekko, or How It All Started
Part 3: Edson Mitchell and the 50 Bandits
Part 4: Life is a Construction Site
Part 5: Ackermann and the Arsonists
Part 6: Rules Are for Fools
Part 7: Easy Come, Easy Go
Part 8: Not a Nice Place

II. Gordon Gekko, or How It All Started

The masters of Germany Inc. wanted to be masters of the universe, but couldn’t even speak English. From the 1980s to the 90s: The Deutsche looked old.

The term “globalization” only began to emerge in the 1990s, a time of economic euphoria in the wake of the fall of the Berlin Wall, after the perceived victory of capitalism over the historical dead end of communism.

In the wake of 1980s “Reaganomics” — named for the US President Ronald Reagan — and the anti-socialist doctrine of British Prime Minister Margaret Thatcher, neoliberalism flourished. For its adherents, neoliberalism was considered a well-founded theory. But its opponents saw it as an erroneous belief in the self-regulating powers of the markets. Nevertheless, neoliberalism entered the mainstream and in Germany too, politicians were eager to deregulate and weaken state oversight.

The Internet arrived, a game changer, and English was suddenly the language of choice. The “New Economy” was here and the “Old Economy”, the industrial economy of things, was considered passé. The virtual economy was the future and “shareholder value” became the driving force of all economic effort.

Things were changing in the banking world as well. Whereas money used to be earned with bonds, stocks and commodities, bets were increasingly placed on fluctuations in the values of bonds, stocks and commodities. A meta-market, one driven by new mathematical formulas, developed alongside the real market — one which took on increasingly madcap characteristics with ever more insane “financial products.” Risk was transformed into securities and those who weren’t part of the machinery hadn’t a clue what was going on.

Well-known US financial institutions such as J.P. Morgan, Goldman Sachs, Merrill Lynch and Shearson Lehman Brothers helped bring the best university graduates from all around the world to Wall Street, creating new role models and masculine sex symbols. In 1987, Tom Wolfe’s Wall Street novel “Bonfire of the Vanities,” about the precipitous fall of Sherman McCoy, described investment bankers on the hectic trading floor as “masters of the universe.” In Oliver Stone’s “Wall Street,” released the same year, Michael Douglas’ character Gordon Gekko became a kind of mascot of greed, with his wide suspenders, thick cigars and generously gelled hair.

At the time, in the late 1980s, it was inconceivable that such a person might ever rise to the top of Deutsche Bank. Until 1988, Friedrich Wilhelm Christians headed up the bank, a discrete, courtly gentleman from Paderborn, a city in the western German state of North Rhine-Westphalia. Born in 1922, he had worked for Deutsche since 1949, a graying witness to the origins of Germany’s social market economy.

In 1988, Deutsche Bank was the largest player in the German economy. It held large stakes in many, if not all, large corporations in the country: a quarter to a third of Daimler shares; co-owner of Karstadt and Südzucker; a stakeholder in Metallgesellschaft; a major shareholder of the construction firm Holzmann, the Hortmann Group and the porcelain producer Hutschenreuther.

The list could go on. The bank’s senior managers and directors also sat on the boards of 400 companies around the country. Without the bank, nothing worked, and standing in opposition to the financial institution was fruitless. Deutsche Bank was Germany, Germany Inc., a small state within the state. Indeed, it was so powerful that many considered it at the time to be a danger to democracy.

In 1985, Alfred Herrhausen became Christians’ deputy and, after Christians left the bank in 1988, was CEO for a year until he was murdered by the left-wing terrorist group Red Army Faction (RAF). Herrhausen had lofty plans for a better world and the development of Africa. He wanted to consolidate the bank to make it more flexible and he understood that international investment was the future. The bank’s German clients were increasingly discovering the enterprising nature of international financial institutions and Deutsche had to be careful not to be left behind.

Herrhausen’s successor Hilmar Kopper shared those worries and he was a new kind of Deutsche Bank CEO, much more Gordon Gekko than Friedrich Wilhelm Christians.

Back then, German was still spoken at the top of Deutsche Bank — it was a time when German personalities such as actress Hannelore Elsner were invited to management retreats to recite poetry. Those who valued good manners, timeliness and order — and who held the correct, center-right political views — tended to have good careers at the bank.

In this atmosphere of demonstrative decorum, there was, it seems safe to say, the virile alpha-males types who personified avarice, spoke English and had no use for tradition seemed both attractive and repellent. And the Germans — “chaste souls,” as Kopper, himself something of a ruffian, liked to call them — needed a wakeup call.

World War II had receded sufficiently into the distance and the German economy had experienced its miracle — now it was time to look overseas. Companies with global potential had their headquarters in Munich, Stuttgart, Berlin and several smaller towns, and they needed a bank to stand at their side during expansion. That, at least, was Kopper’s view and he was easily able to convince the bank’s board.

It was also a time when senior German managers began hearing of the fabulous sums being earned by their counterparts in the US. Though they may — in good, Protestant tradition — still have considered such salaries and bonuses to be indecent, the prospect of such earnings was nevertheless attractive. In general, the ruthless, success-oriented methods of Anglo-American investment bankers were the polar opposite of the relatively staid demeanor of Deutsche Bank, which likely only increased the Germans’ fascination.

In June 1994, Klopper and a small group of senior managers met in Madrid and made the decision to recast Deutsche Bank as a global investment bank. Fundamentally, it seems like a sound decision given that the bank’s old business model — Germany Inc. — wouldn’t earn enough on the long term without the addition of more lucrative business segments. Corporate loans alone weren’t enough to ensure growth. The bank began expanding a bit into Italy and Spain, but the real adventure waited in Wall Street and the City of London. And that’s exactly where they wanted to go.

The problem was, though, that Deutsche Bank at the time, in the mid-1990s, didn’t have the right employees to make the change, and the German labor market and universities weren’t yet producing them. The bank needed mathematicians, programmers, code experts with business instincts — and it needed salespeople who could sell the bank as a product; people who didn’t just sit in their offices managing accounts but who went out knocking on doors, creating a market and bringing a whole new field into being.

It needed people to come up with brand new services that could be sold at a premium; people to come up with contracts that clients had never dreamed of. It needed products that found new, convoluted ways to avoid interest rate risk, limited exposure to volatile currency markets and helped absorb loan defaults. The New Economy needed all of that and more. And the bank needed new people, no matter what the cost.
The Deutsche Bank Downfall
How a Pillar of German Banking Lost Its Way
By Ullrich Fichtner, Hauke Goos and Martin Hesse
October 28, 2016 11:02 AM

Part 3: Edson Mitchell and the 50 Bandits

Part 1: How a Pillar of German Banking Lost Its Way
Part 2: Gordon Gekko, or How It All Started
Part 3: Edson Mitchell and the 50 Bandits
Part 4: Life is a Construction Site
Part 5: Ackermann and the Arsonists
Part 6: Rules Are for Fools
Part 7: Easy Come, Easy Go
Part 8: Not a Nice Place

III. Edson Mitchell and the 50 Bandits

At the end of the 1990s, Deutsche Bank went shopping and grew. Now, the bank employed “conquistadors” who partied with the Rolling Stones. Small-town Germans had a few questions.

It was time for Edson Mitchell. Born in 1953, he was the archetype of the new era — perhaps a bit too short, but wiry and always dressed in the most expensive suits. Mitchell’s grandfather emigrated from Sweden to the United States and his lower-middle class family valued hard work and toughness. At college, Mitchell was always among the best students, including at Dartmouth Business School. At age 27, he began working at Merrill Lynch.

His coworkers admired Mitchell’s competitive nature, his directness and his chutzpah. He was, people said, “aggressive in a positive way,” always wanting to make bets and compete with others. Despite his short height, he played basketball ruthlessly, leaving it all on the court, even during practice. Later, when he began playing golf, he couldn’t get through a round without making constant bets with his playing partners.

Merrill Lynch declined to promote him to senior management because of his abrasive leadership style, whereupon an offended Mitchell left for Deutsche Bank in 1995. Even then, he was already well-known in the scene and considered something of a star.

Kopper hired him and Mitchell brought along 50 of his best coworkers. It was a spectacular move, unheard of for Deutsche Bank, but one that would soon become standard in international banking. Investment bankers know no loyalty. They move in packs to the best hunting grounds — to where the most money can be made.

A red-headed chain-smoker with narrow, clever eyes, Mitchell would go on to lure many more hunters to Deutsche Bank. He was given carte blanche to build up the Global Markets division within the company and charged with assembling a large, international business in London that traded in securities and derivatives, currencies and commodities. He was, in short, charged with transforming Deutsche Bank into an investment bank.

Because he personified the cultural break senior bank managers wanted, Mitchell was polarizing from day one. His direct employees swore eternal loyalty, but those who were not in close contact with him both hated and envied him from a distance. Mitchell was a man of numbers who was considered severe and intolerant of mistakes. On one occasion, when he wasn’t recognized by a Deutsche coworker in Frankfurt and asked who he was, he replied: “I’m God.” Another striking quote attributed to him: “If you don’t have $100 million by the time you’re 40, you’re a failure.”

Initially, though, Mitchell seemed like a failure. His division lost money and was unable to figure out how to integrate the business of British investment bank Morgan Grenfell, even though that is exactly why he had been brought on board. Deutsche Bank had purchased Morgan Grenfell in 1989, but failed to learn from the mistakes of that sale:
When buying an investment bank, you are essentially buying the people who work there — but they generally don’t want to work for you and tend to quickly find new jobs. That was the case at Morgan Grenfell too, as employees left the firm in droves, taking their knowledge and connections with them. It took considerable time for Edson Mitchell to stop the bleeding.

His response to both success and failure was always the same: He would demand more money both for himself and his people — exorbitant sums for a bank like Deutsche, where, unlike Mitchell or his people, many still saw modesty as a virtue.

Mitchell and his people felt differently, and saw themselves as “Indians,” as “mercenaries,” as “conquistadors.” They called their boss a “shark” or the “terminator.” Personnel interviews with Mitchell rarely lasted more than two minutes, after which he would decide who would be allowed to stay and who would be pushed out the door.

Those who stayed led lives in accordance with the contemporary definition of happiness: They commuted between London and New York, celebrated deals with huge parties on the shores of Lago Maggiore or on the Thai island of Phuket, they leased private jets and drank prodigious quantities of champagne. And, unnoticeably at first, they also gradually brought disrepute to the entire finance industry and Deutsche Bank, in particular.

That is when it started: Disdain began sneaking into the vocabulary of the traders. They treated clients like idiots who could be sold garbage as gold. It was around this time, around the year 2000 — a time when Hilmar Kopper had been succeeded by Rolf Breuer, and Josef Ackermann was still waiting in the wings — that the process that would lead to the global financial crisis just seven or eight years later began. And Deutsche Bank, which still looked like its old self back home, had become unrecognizable in London and New York.

On Dec. 22, 2000, Edson Mitchell died in a plane crash on his way to celebrate Christmas with his family in Maine. He was just 47 years old. When news of his death became public, Deutsche Bank’s stock price briefly plunged then quickly recovered. The cynicism at Deutsche Bank was such at the time that people said that, although it was a terrible thing that he had died, it would have been worse if he had gone over to the competition.

Mitchell, though, left behind an extremely competent and ambitious team that continued working in his spirit. People like Grant Kvalheim, an American born in 1957 who specialized in bond issues. Seth Waugh, another American one year younger than Kvalheim, had been brought over from a hedge fund by Mitchell shortly before his death and was an expert on fixed-interest securities.

Still another American, Thomas “Tommy” Gahan, born in 1961, had spent 11 years at Merrill Lynch where he had become a junk bond expert. And there was Anshuman “Anshu” Jain, a Brit who had been born in 1963 in Jaipur, India. A protégé of Mitchell’s, Jain hung a portrait of his mentor in his office after his death. He once said that he would have “gone to the ends of the Earth” for Mitchell.

In 2001, Jain became Mitchell’s successor as head of the Global Markets division and soon achieved superstar status. In February 2006, the Financial Times ran an admiring profile of Jain, who the paper called a “pioneer.” Jain was 43 at the time and developed the trade in so-called derivatives. Today, derivatives are notorious for the role they played in the global financial crisis, but at the time they were only known to experts. Jain was completely at home in the alphabet soup of derivative abbreviations — CDO, CDS, ABS, RMBS — and his numbers made him to one of the best traders of the era. Deutsche Bank had him to thank for a growing balance sheet and huge profits — and a rise in renown and glamor. The London trading division that Jain led was responsible for a considerable portion of the company’s entire profit.

Under Jain’s leadership, Deutsche Bank climbed into fourth place in the global derivatives market, at a time when some had begun issuing dark warnings and others had left the field. The Basel-based Bank for International Settlements, often referred to as the central bank of central banks, warned against the new tools being used to spread risk. But Jain was unconcerned, as were Financial Times reporters. The London-based paper quoted analysts who said that Jain was “top-notch” and had “proved he can walk on water.”

Other Mitchell protégés also did well at Deutsche Bank: Michael Philipp, William Broeksmit and Henry Ritchotte, all from the United States. They were joined by Colin Fan, a Canadian with Chinese parents who was born in 1973 and went to Harvard. He was considered a “child prodigy,” though he was later brought down as a result of questionable business practices. These traders represented the new face of Deutsche Bank.

Nobody mattered much anymore except for the Americans and the Brits. The old structures, which had stood in good stead for almost a century, had been trampled. The Müllers, Meiers and Schulzes, the branch managers in Düsseldorf and Stuttgart, the former stars of the Deutsche Bank empire, they were no longer valued. Their loan portfolios, still as full as ever, were mocked as antiquated.

And the peeved inquiries from provincial Germany regarding the huge sums being earned by the new guard were ignored. Was it true that Edson Mitchell earned $30 million a year? Could it really be true that in the 2000s, half of all profits, hundreds of millions of euros, ended up as bonuses in the pockets of the super-traders? Did they really earn more than any of the board members in Frankfurt?

And why did management insist on flying Kylie Minogue to the annual investor conference in Barcelona? And the Rolling Stones? Why did Ackermann spend hundreds of thousands of dollars to rent out the entire Kennedy Center in New York and treat invited guests to a show involving the best opera stars of the day? Was that really necessary for the bank’s core business?
The Deutsche Bank Downfall
How a Pillar of German Banking Lost Its Way
By Ullrich Fichtner, Hauke Goos and Martin Hesse
October 28, 2016 11:02 AM

Part 4: Life is a Construction Site

Part 1: How a Pillar of German Banking Lost Its Way
Part 2: Gordon Gekko, or How It All Started
Part 3: Edson Mitchell and the 50 Bandits
Part 4: Life is a Construction Site
Part 5: Ackermann and the Arsonists
Part 6: Rules Are for Fools
Part 7: Easy Come, Easy Go
Part 8: Not a Nice Place

IV. Life Is a Construction Site

Deutsche Bank loses its German-ness. It wants too much too quickly. It becomes more American than the Americans. Controlling is spotty and Ackermann has arrived.

Deutsche Bank had lost its home, its center. Germans working at the bank — employees who had proudly worked there for decades — were left behind. The bank was now making clear to them that they were only really suited for the unfortunately unavoidable bread-and-butter business of managing loan portfolios and accounts. And that they were completely exchangeable. The big money-makers, by contrast, in London and New York, were considered irreplaceable by senior management at Frankfurt headquarters.

That, at least, is how it must have seemed to Deutsche Bank employees in Germany. They began to feel estranged from the bank, a feeling that also held sway at headquarters itself. In the early 2000s, one employee in Frankfurt said that the building’s mirrored facade was but an illusion. In reality, he said, it was rotting from the inside because the bank’s workers had lost faith.

And that wasn’t the only line of conflict in the bank. The satellite offices in London and New York had contempt for headquarters in Frankfurt, which they referred to as “the Kremlin.” On the other hand, some traders who worked for Deutsche Bank in New York said they felt like they were on an island and that headquarters actually exerted too little control instead of too much.

It was a clash of two different cultures that couldn’t be reconciled: that of the modestly growing German corporate and commercial bank, which saw itself as an institution operating with an eye to the long-term, and of the world of the investment bankers, whose primary aim was to earn money in the here and now, future be damned.

In such a confrontation, the hunters almost always win out against the gatherers: the Americans and Brits won the clash of cultures within Deutsche Bank, crushing the company’s identity. Senior management and the bank’s supervisory boards at the time were ignorant of the development and apparently completely misinterpreted the situation. The leadership in Frankfurt, first under Kopper, then Breuer and then Ackermann, were unable to integrate the new divisions into the bank’s normal business.

“Compliance” is the name given by bankers to the division charged with ensuring that business is conducted in accordance with the law and that internal rules are observed. But at Deutsche Bank, this division didn’t grow quickly enough. The teams in New York and London were allowed far too much latitude and received inadequate legal consultation. The same was true when it came to risk management.

American Deutsche Bank employees were surprised at how easy it was to get even their riskiest deals rubber-stamped by the mother ship. In the US, they had become used to difficult negotiations with despised risk management personnel, during which they were forced to explain even the smallest of details. Each deal required exhaustive documentation, the analysis of various scenarios and legal expertise.

But at Deutsche Bank, they were working with managers who had a completely different interpretation of their role, managers who either didn’t understand the deals they were being asked to evaluate or who wanted to act cool in the presence of the Anglo-Americans. The Americans, in any case, were often told by the German risk management division: “What a great deal! Good luck!” They often couldn’t believe what they were hearing and, at their parties, laughed about their colleagues back in Frankfurt.

A situation developed which, in the course of our reporting, was described almost exactly the same way by several different interview partners: Under Kopper and Breuer, Deutsche Bank wanted way too much, way too fast. It tried to launch several highly complex operations at the same time and tried, as though it would be no problem at all, to shift from a German culture to an Anglo-American one.

At the top, English was now the language of choice, but not even that proved unproblematic because there were still a few older managers hanging on who had a tenuous grasp on the language. The bank’s leadership also thought that it would be able to take the step from a classic business model to that of an aggressive investment bank with no ill effects.

As a result, Deutsche Bank became like a site undergoing constant construction — that still hasn’t been completed to this day. Every quarter, the bank’s organizational charts looked different. New divisions were created while others were closed down; personnel was cut in one area and doubled in another.

By the end of the 1990s, the bank had begun to lose control. At the time, this could, perhaps, still have been prevented, but the management in Frankfurt and the supervisory board, didn’t react. It’s possible that some board members — who were actually upright businessmen — were intimidated by the new generation, by people like Mitchell and Jain. Perhaps they didn’t believe they were competent enough to contradict them. It is also possible that some board members didn’t care as long as the bottom line, and their own salaries, looked good. And finally, it is also possible that many of them were simply too scared to say anything.

Starting in 2002, Josef Ackermann stood at the helm of the Deutsche Bank ship, having been named Breuer’s successor fully two years earlier. He didn’t seem like someone who enjoyed being contradicted. And he also had no patience for critique of his money-printing operations in London and New York, which continued to expand the bank’s balance sheet and increase profits.

Ackermann’s harshest critic at the time was Thomas Fischer, a member of the board in charge of risk management but also in charge of day-to-day operations. He questioned the many risky positions the bank was establishing in all manner of fields, and the confrontation quickly became a power struggle from which Ackermann emerged victorious. Fischer’s departure from the bank marked the end of internal resistance in Frankfurt — and the end of internal checks and balances.

Ackermann had a free hand, and he took advantage of it. In 2002, a banking crisis took place that has now been almost completely forgotten, but despite widespread concern about global stability, Deutsche Bank’s team in the US was not made to suffer. The generosity shown by the risk management division was matched by the bank’s approach to remuneration.

Whereas Goldman Sachs and Merrill Lynch cut personnel costs by 10 percent in the third quarter of 2002, salary and bonus payments at Deutsche increased by 6 percent, according to estimates at the time made by those working in the investment banking division — despite the fact that the division’s earnings had fallen by 15 percent.
The Deutsche Bank Downfall
How a Pillar of German Banking Lost Its Way
By Ullrich Fichtner, Hauke Goos and Martin Hesse
October 28, 2016 11:02 AM

Part 5: Ackermann and the Arsonists

Part 1: How a Pillar of German Banking Lost Its Way
Part 2: Gordon Gekko, or How It All Started
Part 3: Edson Mitchell and the 50 Bandits
Part 4: Life is a Construction Site
Part 5: Ackermann and the Arsonists
Part 6: Rules Are for Fools
Part 7: Easy Come, Easy Go
Part 8: Not a Nice Place

V. Ackermann and the Arsonists

A new face after 130 years of tradition. In Frankfurt, a new, exclusive executive committee was established. The bank failed to see the 2008 financial crisis coming. Internal conflict. Who controlled the controllers?

When Josef Ackermann took over control of Deutsche Bank on May 23, 2002, it was something of a revolution. One-hundred-and-thirty-two years after its founding, Deutsche Bank began imitating Anglo-American leadership structures. That might sound like a minor detail, but it was a huge cultural shift. Until that point, the head of Deutsche Bank had been the board spokesman, essentially the first among many equals — and all decisions had to be passed unanimously by the board. British and US banks, by contrast, were led by a CEO, who presided over all of the bank’s divisions. The bank’s power was unified in this single position.

Ackermann downsized the management board from nine members to four and created a new body that sounds like a cross between communist and capitalist leadership fantasies: the Group Executive Committee (GEC).

This executive committee, made up of 12 members, became the bank’s new center of power, an alternative management board. The members of the management board also belonged to the new committee along with seven managers who led the bank’s largest divisions and who reported directly to Ackermann. He constantly set ambitious goals for his managers and had them submit daily reports. Although at first he pressured them by being demonstratively amicable, he later became pedantic and, ultimately, vindictive. People who witnessed the development speak of “psycho-terror.”

Ackermann became the bank’s Sun King, which must have been gratifying for him. His career had suffered the same kind of break as Edson Mitchell’s. Just as Mitchell had been blocked from rising to the very top at Merrill Lynch, Ackermann had been sidelined at Credit Suisse, an institution he would have liked to lead. But in the mid-1990s a competitor had been placed at his side and he wasn’t happy about it. Kopper, who was head of Deutsche Bank at the time, let Ackermann know that he would be welcome in Frankfurt at any time and it is very possible that, even before his arrival, he was told that he might ultimately become chairman of the management board.

Ackermann, who comes from Switzerland, is an interesting, enigmatic personality. He undoubtedly has narcissistic qualities, and is given to boasting about his abilities and famous acquaintances. It is a part of his character that shines through in meetings with him and all profiles written about him. He’ll talk about how former New York Mayor Michael Bloomberg welcomed him as a hero or about how the head of the Jewish community greeted him by telling him he had been “sent by God.” In his speeches, Ackermann is fond of bringing up honors he has received and never fails to mention that, when he was head of Deutsche Bank, he always received standing ovations at shareholders’ meetings.

Appraisals from coworkers run the gamut from admiration to aversion. Ackermann would seem to be the kind of person people either love or hate. In Frankfurt, his underlings learned to fear him as a man with an apparently photographic memory for numbers. Ackermann, it was said, could take but a brief glance at a spreadsheet and commit every single number to memory.

When he was appointed in 2002, he became the first foreigner to lead Deutsche Bank, a detail that no media report at the time left unmentioned. Ackermann never thought much of discussions about the bank’s German culture. Externally and for PR purposes, he was happy to parrot the bank’s German values, but internally, he presented himself as a devotee of internationalization — as someone whose job was to throw open the window in order to air out a particularly stuffy hallway. The “Deutsch” in Deutsche Bank was good for marketing, but not so good for earning money on Wall Street. Ackermann set about changing the bank’s core identity while still celebrating the institution as a bastion of tradition.

He used the Executive Committee to limit pesky controls and to shift around resources without fear of being contradicted. The new power center was dominated by the investment bankers surrounding Anshu Jain and Michael Cohrs, who was responsible for large-scale mergers. It cemented the power structures at the bank that had existed at least since takeover of Bankers Trust.

Deutsche Bank had taken over Bankers Trust, an American investment bank, in 1999, a move that made it one of the biggest banks in the world, a fact it proudly proclaimed. More than anything, the takeover sent a message to the banking world that Deutsche Bank was serious about its plans to become a leading investment bank. It made it easier for Edson Mitchell, who was still alive at the time, to recruit both new talent and new investors. The earlier argument that Deutsche Bank was insufficiently represented in decisive markets no longer held true.

The new leadership structure gave the investment division easier access to resources. They were able to negotiate the budget for their capital-intensive activities directly with Ackermann, who was also responsible for distributing bonuses. It was a clever structure that also helped avoid friction with shareholders and the public: While management salaries in business operations had to be disclosed, those of GEC members did not. In the good years, Anshu Jain and several other committee members earned more than Ackermann. Indeed, in the course of his career at Deutsche Bank, Jain alone is thought to have earned between 300 and 400 million euros.

But Ackermann’s organizational coup also had an additional effect. By shifting the most important decisions from the management board to the Executive Committee, the supervisory board no longer had as much influence on the bank’s leadership. According to German law, the supervisory board can only control the management board — and supervisory board members only learned as much about the activities of divisions under the control of the GEC as Ackermann was willing to tell them. Effective control was made even more difficult when Ulrich Cartellieris resigned in 2004. After that, there was only one trained banker left on the supervisory board: Rolf Breuer.

Germany’s financial supervisory authority BaFin checked the new committee prior to restructuring but found no cause for complaint. The authority was satisfied by the bank’s explanation that, from a legal perspective, GEC members were not company directors. As such, BaFin abstained from looking into the qualifications of the GEC members, something it always does for board members.

As a result, the existence of the Executive Committee didn’t just lead to a shifting of power within the bank, but to a culture of organized irresponsibility. Beneath the GEC were further committees and subcommittees and in the end, nobody knew who had responsibility for what. Neither did Ackermann, even as his formal power continued to grow.

In 2006, he had the supervisory board promote him from management board spokesman to management board chair, a step on the road to becoming an American style CEO. For the bank, the move would later have a fateful side-effect: whereas the management board to that point had always elected its leader from among the board’s members and had the supervisory board approve the choice, from that point on the supervisory board was responsible for finding the bank’s next leader.

On May 4, 2006, Clemens Börsig, who had been the bank’s chief financial officer up to that point, became head of the supervisory board. It is difficult, if not impossible, to find someone involved with the bank who has much good to say about Börsig. Most are unanimous in the view that he was overwhelmed by the position, particularly when it came to finding Ackermann’s successor.

When the Swiss banker first mentioned in 2007 that he planned to step down in 2009, a chaotic search for his successor commenced — at the end of which Börsig suggested that he himself be appointed. The supervisory board rejected his attempt at self-promotion and successfully convinced Ackermann to stay. Although he and Börsig were no longer able to get after that, they still had to work together for three more years.

Finally, Börsig tapped Anshu Jain and Jürgen Fitschen to succeed Ackermann against Ackermann’s will. But real problems were brewing elsewhere. Even as Frankfurt was fighting over personnel and responsibilities, the world outside was collapsing. Between 2007 and 2011, a global financial crisis was followed by a European debt crisis that threatened to tear Europe apart.

Instead of quickly and carefully reexamining its business model, reevaluating its exposure and reconsidering its future, Deutsche Bank learned basically nothing from the crash. Under Ackermann’s leadership, it had lost both the intellectual weight and the organizational structures to lead a competent debate about the narrowly avoided destruction of the entire banking universe. Entangled in childish, personal bickering, the bank missed its chance to start anew.

Critics of the bank see it as an unforgivable failure, the consequences of which still haven’t been overcome. Once Jain took over from Ackermann in 2012, the bank remained one of the few financial institutions in the world that continued to conduct business as usual. And because it underestimated the consequences of the 2008 debacle, it didn’t have the sensitivity to understand how seriously lawmakers saw the development. Frankfurt realized only far too late that regulators might actually move to curb investment banking.
The Deutsche Bank Downfall
How a Pillar of German Banking Lost Its Way
By Ullrich Fichtner, Hauke Goos and Martin Hesse
October 28, 2016 11:02 AM

Part 6: Rules Are for Fools

Part 1: How a Pillar of German Banking Lost Its Way
Part 2: Gordon Gekko, or How It All Started
Part 3: Edson Mitchell and the 50 Bandits
Part 4: Life is a Construction Site
Part 5: Ackermann and the Arsonists
Part 6: Rules Are for Fools
Part 7: Easy Come, Easy Go
Part 8: Not a Nice Place

VI. Rules Are for Fools

Deutsche Bank had its fingers in every pie, earning the most when its own clients are suffering. The 2000s looked like a police report.

In April 2002, the German paper Welt am Sonntag printed an interview with “exemplary banker” Friedrich Wilhelm Christians. Christians was Deutsche Bank’s management board spokesman before he moved to the supervisory board in 1988. Christians was celebrating his 80th birthday a few days later and agreed to answer a few questions about the good old days and the bank’s current situation.

Christians was asked if he found the high salaries and other activities of the investment bankers to be justified. “Of course not,” he replied. “A bank with over 100 years of success and tradition destroys a lot with this kind of activity. It was always something special to work at Deutsche Bank. These young guys don’t care. They only care about making sure that their bonuses are paid.”

It was a voice from the past — that wasn’t heard in Ackermann’s Executive Committee in Frankfurt. Their language was English, and many likely didn’t even know who this old Christians guy was anyway.

The transformation of Deutsche Bank had largely been completed. Germany’s largest commercial bank had become an Anglo-American investment bank. Before long, the British magazine Economist would, in a perceptive article, refer to Deutsche as a “giant hedge fund.” The era of enormous excesses began, an era of ludicrous mistakes and of intentional and frivolous misdeeds whose legal ramifications are still eating away at Deutsche Bank’s balance sheet.

The years that followed were filled with egregious activities that state agencies would later spend years examining. Starting in 2005, Deutsche Bank began selling huge quantities of dubiously structured, repeatedly reassembled and newly packaged mortgage loans.

Starting in 1999, and continuing at least until 2006, the bank engaged in deals in Libya, Iran, Burma, Syria, Cuba and North Korea, many of them suspected of having been conducted in violation of US sanctions, including money laundering.

Starting in 2003, the bank is thought to have manipulated currency trading with the help of illegal software, thus purloining money from many thousands of customers.

In 2005, Deutsche Bank hurt mid-sized companies and German municipalities by selling them derivative financial products known as Spread Ladder Swaps, which failed to bring the advertised savings, instead resulting in losses.

Starting in 2008, the bank began helping US citizens hide unreported income in Swiss bank accounts.

Starting in 2009, the bank became part of a tax avoidance scheme involving CO2 certificates.

In November 2010, Deutsche Bank traders in South Korea manipulated the country’s leading stock index through the 1.6 billion euro sale of a bundle of stocks.

Starting in 2011, Deutsche Bank employees in Moscow and London helped transfer rubles worth 10 billion dollars out of Russia in daily tranches without a recognizable commercial purpose.

In 2011, Deutsche Bank was involved in the flourishing business of “Dark Pools,” trading platforms that allow both buyers and sellers to remain anonymous — but the bank was accused of having manipulated the prices of the securities to the detriment of the customers.

When several banks banded together to manipulate the Libor, the interbank interest rate, Deutsche Bank was involved.

When gold and silver prices were manipulated, Deutsche Bank came under suspicion.

All of that, and the above list is just a sampling, took place during the years Josef Ackermann was the absolute sovereign of Deutsche Bank. Did he lose oversight? Or did he allow it to happen? Did the bank’s all-powerful controller lose control?

They were years when Ackermann did everything in his power to improve the bottom line, and Anshu Jain and his team delivered. It was Jain who created structures that allowed for even greater profit, but were also open to manipulation. Later, he would establish the narrative that the problems were all caused by individuals — black sheep — at the bank, but investigative reports compiled by state agencies have revealed Deutsche Bank’s failings and trickery to be systemic and organizational in nature.

The Libor rate, for example, which is vital for businesses and savers alike, could be manipulated because the bankers involved in the calculation of the interest rate were encouraged by Anshu Jain’s management team to consult with traders within the bank who had made bets on exactly this interest rate.

On the eve of the financial crisis, the bank allowed itself a particularly notable bit of treachery, one which destroyed what was left of its once unassailable reputation. It didn’t just sell its customers securities whose worthlessness was already apparent to the bank’s own traders, but allowed its own investment bankers to place bets on Wall Street on those securities’ further loss of value — and grab just a bit more off the top at the cost of its own customers.

Greg Lippmann, who joined Deutsche Bank in 2000, is the name of the trader who ultimately bet 5 billion dollars against his own products. His story, which has since been turned into a movie, can be read in a report on the causes of the financial crisis assembled by the US Senate. The report also contains testimony that, on three occasions in the winter of 2007, Lippmann obtained permission from Anshu Jain to continue with his extremely amoral activities. Lippmann allegedly earned $1.5 billion for the bank with such bets. It would be interesting to know if, as billions were disappearing around the world in 2008, he received a nice bonus for his efforts.
The Deutsche Bank Downfall
How a Pillar of German Banking Lost Its Way
By Ullrich Fichtner, Hauke Goos and Martin Hesse
October 28, 2016 11:02 AM

Part 7: Easy Come, Easy Go

Part 1: How a Pillar of German Banking Lost Its Way
Part 2: Gordon Gekko, or How It All Started
Part 3: Edson Mitchell and the 50 Bandits
Part 4: Life is a Construction Site
Part 5: Ackermann and the Arsonists
Part 6: Rules Are for Fools
Part 7: Easy Come, Easy Go
Part 8: Not a Nice Place

VII. Easy Come, Easy Go

Deutsche Bank’s balance sheet and its total results as an investment bank: A sober look at the books.

Several million numbers flow into Deutsche Bank’s balance sheet and the most recent annual report for 2015 is 500 pages long. But if you take a closer look at the bank’s annual report over the years, you can find numbers that tell the tale of the institution’s metamorphosis.

The bank has become much larger since 1994, but it has lost value. It began taking much greater risks, which ultimately proved not to be worth it. The final analysis of Operation “Deutsche Bank Rebirth” is rather sobering.

In 1994, the bank had 73,450 employees, three-quarters of them in Germany. But by 2001, there were 94,782 people working for Deutsche Bank, half of them abroad. In 2007, at the apex of the boom, fully two-thirds of the bank’s employees were outside of Germany — and not even one-third of the company’s revenues came from Germany.

The balance sheet climbed from 573 billion deutsche marks in 1994 to 2.2 trillion euros in 2007, an unbelievable expansion. But size alone isn’t necessarily indicative of value. The value of a financial institution is determined by its stock price and market capitalization. And here, the results aren’t nearly as impressive. There was a time under Breuer and again under Ackermann when the bank’s value had temporarily doubled relative to 1994, but today Deutsche Bank is worth less than it was before it completely revamped its approach.

Other numbers provide an indication for why that is. The bank has a completely different internal structure. In 1994, most of the bank’s earnings came from traditional commercial banking. But by the 2007 peak of the speculation party, the investment division’s share of the bank’s earnings, often made with the help of particularly risky deals, had climbed to over 70 percent.

Ackermann’s strategy initially seemed successful. At the peak of its success, the bank achieved a 31 percent pre-tax return on equity, which is estimated to be twice as high as it was in 1994. Return on equity measures the profit earned on the investment of the bank’s own equity. It was Ackermann’s longtime and oft-stated dream to achieve a return of 25 percent. At the time, he was unfairly berated as a greedy, unscrupulous shark. Before 2008, Ackermann’s 25 percent wasn’t an unusually high return.

What was unusual, and unsavory, were the tricks and the brutality Ackermann used to achieve his target. Return on investment climbs, of course, as profits rise — but it also rises when the amount of equity invested is lowered. And if both happen at the same time, the bottom line becomes quite attractive indeed.

Ackermann continually demanded that his people buy back Deutsche Bank stock and destroy it. Doing so is not against the law; indeed stock corporations do it quite regularly to reduce their proprietary equity. But seen another way, Ackermann was hurting the company’s long-term prospects for the sake of short-term balance sheet figures.

At the beginning of the Ackermann era, the bank’s core capital quota stood at 10 percent. By the highpoint of the boom and the onset of the crisis, Ackermann had pushed it down below 9 percent. That means that the bank’s capital buffer was shrinking, which increases risk. In the language of the branch, Deutsche Bank was highly leveraged, investing with more of other people’s money (debt) and less of its own. At Deutsche, this debt-to-equity ratio would sometimes reach as high as 40:1 in those days.

An additional risk that the bank took on during this time can only be found in more recent annual reports: Penalties or damages accrued as a result of illegitimate or illegal deals. Such bombs only go off after a significant amount of time has passed and their effect can first be seen in an appendix to the 2012 annual report. There, one notices that the line item for “operational risks/litigation” exploded from 822 million to 2.6 billion euros. At the time, investigations into the Libor affair were ongoing and penalties were looming. But such risks continued to rise in subsequent years — and continue to do so.

Ackermann has defended himself by saying that, until the financial crisis, he intentionally crept as close as possible to the line of what was permissible and prides himself on that approach. With capital, with leveraging, with risk, he took advantage of the full extent of his leeway. Otherwise, he says, the bank wouldn’t have been competitive. But was the strategy worth it?

The numbers in the annual reports help provide an answer to that question too. Both the high profits and most of the legal problems were produced by the Global Markets division under the leadership of Anshu Jain. In the 15 years between 2001 and 2015, Global Markets earned 25 billion after taxes. But a majority of the more than 12 billion euros that have been paid out by the bank since 2012 due to the bank’s legal troubles must be subtracted from this: fines, damages and penalties. The bank has set aside an additional 5.5 billion euros, but analysts believe that the bank could need up to 10 billion for the payments.

That, though, would mean that almost the entire profit earned by Global Markets would disappear. The huge investment bank experiment would result in a goose egg, or, even worse, a lasting burden. Because in order to keep the traders busy, other divisions were neglected. Investment in the bank’s infrastructure, in its computer systems, was insufficient. It was only due to regulatory pressure that the bank recently invested a billion euros in improved control and security systems.

The costs to the bank’s reputation caused by the activities of Ackermann and Jain, however, cannot be calculated. How might Ackermann “price in” Deutsche Bank’s ruined reputation — the bank’s collapse into a broadly scorned financial institution that has little to do with its German roots?

And then there are the bonuses. From 1994 to 2015, the number of bank employees rose by 30 percent, but total salaries rose by 200 percent, to 13 billion euros. Most of that was paid out to Jain’s team. Notably, that salary figure hasn’t declined much since the crisis. In 2015, 756 of the bank’s 100,000 employees earned more than a million euros. For what exactly?
The Deutsche Bank Downfall
How a Pillar of German Banking Lost Its Way
By Ullrich Fichtner, Hauke Goos and Martin Hesse
October 28, 2016 11:02 AM

Part 8: Not a Nice Place

Part 1: How a Pillar of German Banking Lost Its Way
Part 2: Gordon Gekko, or How It All Started
Part 3: Edson Mitchell and the 50 Bandits
Part 4: Life is a Construction Site
Part 5: Ackermann and the Arsonists
Part 6: Rules Are for Fools
Part 7: Easy Come, Easy Go
Part 8: Not a Nice Place

VIII. Not a Nice Place

Deutsche Bank wanted to come home. John Cryan destroyed half of its market value. It was the end of self-deception.

Deutsche Bank’s recent history gives rise to numerous questions beginning with “could,” “would” or “might.” Would the bank’s path have been different had it merged with Dresdner Bank in 2000? Might things have turned out differently if the investment division had been set up as a separate bank alongside the classical institution under a holding company? Could one not already see in 2002 that Wall Street is on a constant cycle of boom and bust?

In the crisis before the crisis, the one in 2002, 50,000 bankers lost their jobs on Wall Street and a further 25,000 became unemployed in London. Merrill Lynch and Goldman Sachs both downsized. But Deutsche? Deutsche Bank stepped on the gas. It made fewer cuts than its competitors because it hoped to increase its market share on the next upswing. And it worked. Josef Ackermann was celebrated as a genius — until around 2007 or 2008.

Deutsche Bank didn’t learn much from the global financial crisis. Ackermann is fond of reciting numbers that allegedly prove he drew tough consequences from the crisis, but decisive changes were not made. The investment in, and the step-by-step takeover of, Postbank may have been an attempt to broaden the bank’s foundation back home, but management in Frankfurt never seemed particularly invested in the acquisition.

Ackermann made minor corrections here and there to the bank’s overarching strategy, but refrained from far-reaching changes. Unlike its competitors, Deutsche didn’t just dance for as long as the music played, it continued until 2012, until Ackermann’s departure, and even further, once the greatest of the investment bankers, Anshu Jain, rose to the top. Investment banking was all he knew and all he wanted to know, and his co-CEO Jürgen Fitschen simply watched and did nothing.

It was the bank’s investors who pushed Börsig, the supervisory board chair, to install Jain on the throne because they still believed that the superstar could make it rain money again. That was a mistake. Jain expanded the Group Executive Committee to 22 people to reward his acolytes — which meant those who had presided over one scandalous deal after another were now at the top of Deutsche Bank. Why would anyone expect these investment bankers to make the necessary break with the past?

They couldn’t and didn’t. As more and more information came to light between the years 2012 and 2015 about the ways Deutsche Bank traders had made their billions, Jain did little to help clear things up. He instead whitewashed and dallied, while enjoying the protection of Achleitner, the supervisory chair. His co-CEO Fitschen was left to talk about culture and values to no one in particular.

But now Deutsche is getting its comeuppance for having avoided and arrogantly treated the regulators. British and American regulators seem particularly eager to go after the haughty bank from Frankfurt and partly justified the high penalties they levied on the bank by referring to the bank’s insufficient cooperation. Jain, in any case, couldn’t to deal with regulators, at least not German ones.

He could also no longer do what he became famous for: make money. The new head of Deutsche Bank misread the zeitgeist, thinking he knew better than all the rest. Even as competitors reduced their speculation on interest rates, currencies and derivatives, Jain continued and increased his market share — in a market whose products nobody wanted anymore.

Deutsche Bank continued dancing — on Wall Street and in London. It danced and danced, looking like it had lost all connection to reality and all business sense. Even today, according to a report by the Wall Street Journal, Deutsche Bank carries a debt-to-equity ratio of 24:1, while Goldman Sachs has gone down to a ratio of 9:1. And the bank is still juggling billions in derivatives, securities that are essentially bets on future developments.
Its derivative portfolio represents no significant risk, says current management, but given all that has happened, investors have lost trust — just like what happened with Lehman Brothers. If history repeats itself, Deutsche Bank would be at the center of the inferno.

How, then, will the story of Deutsche Bank continue? Will it continue? With John Cryan? He is Ackermann’s polar opposite. Whereas the Swiss banker always insisted that the bank was stronger than it actually was, Cryan, who comes from the UK, is open with the bank’s employees about its deficits and talks publicly about things that aren’t going well.
Doing so, however, has scared away customers and shareholders: Nobody wants to bring their money to a bank that seems like one of the industry’s losers. Since Cryan took over as CEO, Deutsche Bank’s stock price has plunged by 50 percent, at times even falling below 10 euros per share, a price last seen in the 1980s.

There are weekly reports of high-ranking managers and investors turning their backs on Deutsche Bank because of its cloudy future. It is losing market share in investment banking faster than Cryan’s consolidation strategy calls for. His teams also don’t give the impression that they’ll be able to make much headway in Germany, the home market that has suddenly become all important. And how should they? The corporate client division is led by an American in New York. The circle, if you will, a closing: Deutsche has become an American bank trying to reconquer its erstwhile homeland from abroad.

But many bank employees are happy to see the era of self-deception come to an end and see it as an opportunity. Cryan and the bank are confronted with the same questions that presented themselves in 1994, when Deutsche turned onto a dead-end road: In what business sectors and in which markets does Deutsche Bank have a future? The answers to those questions are more difficult to find today than they were then.

The bank has lost its identity and is now tasked with identifying new goals at a time that could hardly be worse for the banking industry. Interest rates are practically non-existent, and they are likely to stay that way for some time. The European Union is at risk of disintegration and new, faster digital competitors are growing quickly. Regulators and politicians, traumatized by 2008, are keeping a watchful eye on banks, demanding higher capital reserves and limiting their room for maneuver. Investment banks of the kind that existed prior to 2008 are no longer welcome in Europe.

But what else can Deutsche Bank do? There is no doubt that it has to shrink significantly. It has to consider whether it really needs to be present in 70 countries and ask why it has more employees than ever despite having been suffering for years.

If things go well, the bank will soon be able to put the largest of the left-over legal challenges from the Ackermann era behind it, perhaps even by the end of this year. That, at least, would provide the time and the space for the formulation of a new strategy, if it’s not already too late. The bank is dependent on investors and no longer master of its own fate. Survival is the goal.

If the penalties are too high and the bank brought to its knees, Germany will face a discussion that will have a significant effect on the 2017 general election. At a time when populists are dominating the political debate, a bailout of Germany’s largest bank using taxpayer money would be a particularly touchy operation, to say the least. Nobody will be interested in taking the lead.

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.

The proud institution became a self-serve buffet for a few, who became fantastically rich. The bank’s old leaders, insofar as there were any left, didn’t have the strength anymore to put an end to the chaos. They simply watched, lazily and cowardly. And so the work of generations went down the drain. And we are told that no one is to blame.


The article you are reading originally appeared in German in issue 43/2016 (October 22th, 2016) of DER SPIEGEL.

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TECH BUBBLE FEARS: Apple, Amazon and Facebook shares skid sparking crash worries
By Lana Clements
PUBLISHED: 15:13, Mon, Jun 12, 2017 | UPDATED: 15:29, Mon, Jun 12, 2017

FEARS are growing that tech shares are in a bubble that is bursting in a worrying replay of the millennium dot-com boom.

Tech share prices are falling raising fears of a crash

Stock prices in some of the world’s biggest internet companies continued to fall on Monday amid signs the recent bumper rally could be coming to a brutal end.

Facebook, Amazon, Apple and Netflix share prices were hit by heavy losses on Monday morning, coming on top of sharp sell-offs on Friday.

Most of the world’s biggest technology firms are listed on the US stock index the Nasdaq, which tumbled Monday morning, after ending Friday down 1.8 per cent.

It comes after huge gains across technology stocks in recent months.

Amazon’s share price hit an incredible $1,000 at the end of May, up more than $300 from a year earlier.

Saudi’s row with Qatar sinks oil prices to lowest level of 2017

The Nasdaq has witnessed huge gains over the past year

But the internet streaming and shopping service saw its share price fall 2.5 per cent on Monday, after sinking more than three per cent on Friday.

Netflix’s share price also dived almost four per cent on Monday after losing close to five per cent on Friday.

Twitter, Facebook and Apple’s nursed losses of almost four per cent at the end of last week and were in the red again today, falling around two per cent, 1.5 per cent and four per cent respectively.

Euro SINKS as European Central Bank set to admit policies are FAILING

Amazon’s share price hit $1,000 at the end of May

Experts said if the tech firms sell-offs continue, contagion could spread into other sectors and trigger a wider and more panicked crash.

Kathleen Brooks, research director at City Index Direct, said: “Essentially, nothing fundamental has changed for the big US tech giants like Facebook, Amazon, Apple and Google.

“Interestingly, we pointed out that Google was lagging the other Silicon Valley giants in the tech rally, and it managed to have a softer sell off on Friday, down three per cent, compared to nearly four per cent for Apple.

“This theme may continue, and it’s worth watching to see if Google can have a softer sell off compared to other tech giants in the days ahead.

“A second session of hefty losses for the Nasdaq and US tech sector could spook the markets this week, so if we don’t get a recovery then we may see a broader decline in growth assets.”

Tech companies are vastly over valued as they are vastly overrated. Facebooks value come from the numbers of people but facebook has had its day as more people start to drop using it. When you consider what the like of Facebook twitter and Instagram are actually about then without the billions of people who just post complete rubbish it becomes nothing, the technology behind these companies is incredible basic. Their money comes from advertising revenues and there are too many companies competing for that same revenue pool. Facebook claims billions of users but most accounts are not used or just fakes. I would say google has the edge but it is time for a new search engine to displace google with a more even search algorithm
Global credit crunch WARNING issued on debt bubble as current trends mirror 2008 crash
Lana Clements
PUBLISHED: 15:32, Tue, Jun 13, 2017 | UPDATED: 18:13, Tue, Jun 13, 2017

WARNING signals have been felt today after a key credit indicator mirrored the same pattern experienced ahead of the financial crisis of 2008, in a eerie sign that the global economy is heading for another downturn.

A indicator tracking credit is following a worrying trend

A key UBS credit impulse which monitors the changes in credit volume has tumbled by six per cent of GDP since last year.

It mirrors the same movement seen before the financial crisis 10 years ago, raising fears the global bubble could be about to burst and another credit crunch.

China and the US are the biggest drivers in the credit changes, with the measure turning negative to hit -0.53 per cent for America in March.

Both superpowers are struggling with credit saturation and in the US, Donald Trump’s tax and economy plans have put businesses plans on hold, stalling economic growth.

At the same time, China’s credit impulse has tumbled by 12 per cent of GDP.

Britain has also reached its highest level on the credit indicator, suggesting debt is now underpinning the UK economy, before falling, according to the Telegraph.

British consumer debt has been on fire since last year, said UBS.

But warned that the UK is highly dependent on the global economy and is hit hard by slowdowns in the US, China and emerging markets.

Although the impulse is higher than it was after Lehman Brothers collapsed in 2008, the signs are still worrying.

Arend Kapteyn from UBS said there is a high 0.73 correlation out of one between the credit impulse and demand in the US.

The credit figures are more worrying because the US Federal Reserve is steadily raising interest rates.

It comes as bond investor Bill Gross warned that monetary policy has worsened the gap between the real economy and financial markets.

He said the risk to investors was now at an all time high.

Speaking to CNBC, the portfolio manager at Janus Henderson said: “Don’t be mesmerized by the blue skies created by central bank QE and near perpetually low interest rates. All markets are increasingly at risk.”

Central banks are currently buying trillions in assets in a process known as quantative easing and as a result have kept rates at near zero or just below in an effort to regulate economies.

But there are fears that low rates have pushed financial markets to unsustainably high levels while real economic growth remains flat or sluggish.

The World Bank has forecast that global growth will stay well below 3 per cent through 2019 and is encouraging banks to inject cash into economies to pick up growth.

Gross added: “Strategies involving risk reduction should ultimately outperform ‘faux’ surefire winners generated by central bank printing of money.”

“It’s the real economy that counts and global real economic growth is and should continue to be below par,” he said.

Euro SINKS as European Central Bank set to admit policies are FAILING

Remember this. BANKS and Finance companies only make their wealth from YOUR DEBT. If you don’t owe them, they can’t make any profit from you.
Only to be expected when people want everthing they can’t afford and, are encouraged to have it by the government and businesses that make little or nothing of consumer goods but import them. This bang is going to be even worse than the last one. Do YOU THINK THE GOVERNMENT WILL SUPPORT THE FINANCE SYSTEM AND BANKS? OF COURSE THEY WILL and, at our expense like last time.

The problem with bankers and politicians who can make the changes needed to our systems is that none of them read the sun the mirror the express or the daily mail, They tend to go for newspapers and media outlets like the FT and times where its all manipulated and hidden from the truth…

I got news for you. Money isn’t real and it hasn’t been for a while too. The only thing that is real wealth these days are assets.. So you think about all of those poor soul’s that have lost their assets because they couldn’t repay the fake money they couldn’t repay such as their home or car.. And then i want you to think about how the rich are buying all the assets with fake money.. And don’t forget the nations that have been crippled by debt such as Greece.
Credit crunch, 10 years on: fate of RBS shows global crisis is not over
Larry Elliott and Jill Treanor
Friday 4 August 2017 15.55 BST

As RBS remains in the red, in the third part of our series financial experts ask whether enough has been done to prevent a repeat of the global crash
Demonstrators protest outside Royal Bank of Scotland’s AGM in 2008 where the bank wanted shareholders to help the group shore up its finances in the wake of the credit crunch. Photograph: Jeff J Mitchell/Getty Images

Ten years ago, Royal Bank of Scotland was battling with Barclays to take over a Dutch rival, ABN Amro. RBS eventually slapped £49bn on the table and won. It was to be a transformational deal, and it certainly was – but not in any way that the boss of RBS at the time, Sir Fred Goodwin, had ever planned. Today, the Edinburgh-based bank is still displaying the damage caused by doing that deal. Still 71% owned by the taxpayer after a bailout in October 2008, the bank will once again sink to a big loss by the end of the year – its 10th consecutive year in the red.

The story of RBS shows that, even now, the global financial crisis is having a profound impact. But it also raises another issue: has enough been done to prevent a repeat of the horrors of a decade ago, which began in August 2007?

Given concern that the record low interest rates and electronic money printing that central banks resorted to in the face of the biggest recession since the 1930s are storing up problems for the future, the question is simple: has anything really changed?

Those responsible for dealing with the crisis say there is little doubt about its lingering impact. Alistair Darling, who had been chancellor for little more than a month when the markets froze in early August 2007, said the events generated a sense of injustice that is still shaping politics today.

“Very few people would have thought, back in 2007, this will provoke an economic crisis that will still be under way 10 years later. Everything that’s happening in the world just now – UK included – has to be seen in light of the backwash of what happened with the economic crash that followed the banking crash,” said Lord Darling.

Events moved swiftly 10 years ago. A month after the banks stopped lending to each other there was a run on Northern Rock – the first to affect a UK high street bank since Overend Gurney in the 1860s. A year later, Lehman Brothers collapsed in the US – triggering shockwaves through global markets. In the UK, the government bailed out RBS and Lloyds Banking Group.

No longer an MP but now a Labour peer, Darling reckons it could happen again – but not for a long time. “When the present generation is gone, the people who were in shock, a bright spark will come along and say ‘I’ve found a great way of making money’ and there’ll be nobody to say ‘the last time we did that we went bust’.”

Mervyn King, with whom Darling had a sometimes testy relationship during the crisis, agrees. Like most of those in the eye of the storm a decade ago, King thinks the financial system is in much better shape, but would be even healthier had Darling fully nationalised RBS and forced all the leading banks to take bailout cash, as happened in the US.

Even so, he said, banks were stronger and individuals now had to take greater personal responsibility for their actions.

“In that sense we are in a much better position, but the challenge for policymakers is not to worry about today but to worry about what happens in 20 years’ time, when everyone will have forgotten about this,” said Lord King. “That’s what a central bank is all about, it’s an organisation with institutional memory.”
Alex Brazier at the Bank of England. Photograph: David Levene for the Guardian

His idea is for central banks to become a “pawnbroker for all seasons” – agreeing in advance the terms of any loans by a lender of last resort, helping to avoid the moral hazard problem where banks take risks because they know they are going to be bailed out.

A senior Bank of England official, Alex Brazier, has recently warned about banks dicing with a “spiral of complacency” in their consumer lending – when borrowing on credit cards, via unsecured loans and car loan schemes has topped the £200bn level for the first time since the crisis.

Paul Myners, a former fund manger who was City minister during the banking crisis, is concerned.

“Even a return to normal interest rates of inflation plus one or two per cent would have quite substantial impacts on a lot of borrowers … You start to run scenarios in which interest rates are higher and the economy is not going so well and the default risk in property, consumer credit and car loans will increase dramatically,” said Lord Myners. He does not, however, think we are on the verge of another collapse.

But he does believe there should be more scrutiny of shadow banking – where fund managers, insurance companies and hedge funds conduct bank-like activities with less regulation.

Adair Turner, who became chairman of the Financial Services Authority in the month that Lehman Brothers went bust, worries that the complex, off-balance-sheet financial instruments that dominated the 2007 crisis – such as special investment vehicles (SIV) – have now become a feature of the financial regime in China, the world’s second biggest economy.
Adair Turner, chairman of the Financial Services Authority at the time of the crash. Photograph: Antonio Olmos for the Observer

Lord Turner reckons the authorities in Beijing could contain a financial crisis – but the inevitable slowdown in the Chinese economy that would follow would prove costly to the rest of the world.

But he also believes that after 10 years of record stimulus – low interest rates and electronic money printing through quantitative easing – the world may be ill equipped to cope with another recession. “The big thing sitting behind the global economy is even, after years and years of very low and even negative interest rates, all we are getting to is barely adequate growth rates and inflation still below target. So if in that environment you have a significant downward shock, what do the central banks do next?”

After the crisis, the FSA was shut down in a regulatory overhaul . The Bank of England was handed back powers to oversee the biggest lenders and a new regulator, the Financial Conduct Authority (FCA), was set up to monitor how financial firms behaved. There was a big push to force all the strategically important global banks to increase the amount of capital they held against possible losses.

Turner, who chaired the now defunct FSA until 2013, said: “I think the financial system is now much more resilient than what it was in 2007-08.”

Andrew Bailey, who now runs the FCA, was at the Bank of England during the crisis. He also cites the side-effects of a prolonged period of low interest rates. On Thursday, the Bank of England left interest rates unchanged at 0.25%.

“If we put Brexit to one side, then the impact of sustained low and negative real interest rates is the biggest issue we face,” said Bailey, pointing to research by the Institute for Fiscal Studies showing the gap between young people and the older generation.

Darling points to the social and political impact of the years following the crisis. “If you look at the politics that have seen Trump elected, the politics in the UK today, of Brexit, a lot of it has got to do with the backwash of that time, where people have seen their incomes squeezed, if not reduced. People are worried about the security of employment.”

The consequence of the credit crunch and the global financial crisis, he concludes, is ” a millennial generation who are now poorer than the generation which came before them”.

will once again sink to a big loss by the end of the year
was a run on Northern Rock
Lehman Brothers collapsed in the US
has recently warned about banks dicing with a “spiral of complacency”
has topped the £200bn level for the first time since the crisis
was shut down in a regulatory overhaul
Germany’s SECOND biggest bank Commerzbank posts unexpected massive loss
By Paul Baldwin
PUBLISHED: 00:01, Wed, Aug 2, 2017 | UPDATED: 16:10, Wed, Aug 2, 2017

GERMANY’S second biggest bank Commerzbank is facing an uncertain future after posting massive losses of more than €400 million today.

Germany’s SECOND biggest bank Commerzbank posts unexpected massive loss

The catastrophic loss, which equates to £363m, is huge reversal of last year’s €380m profit.

The 147-year-old Frankfurt-based giant has slashed more than 7,000 jobs and has earmarked a further €807m (£720m) to mitigate against job cuts following severance agreements with works councils.

Bosses have said the bank is in midst of a restructuring.


Commerzbank share price plunges AGAIN amid profit fears

The first half losses were higher than analysts had previously expected.

But in a report out today bank bosses point to spending on customer acquisition and the digitisation of the business.

Since the start of the conversion in October, Commerzbank has won more than half a million customers, while the subsidiary Comdirect contributed 100,000 by acquiring the online broker Onvista.

In customer growth, we are above plan, also because we have invested
Martine Zielke

The loss, which equates to £363m, is huge reversal of last year’s €380m profit

CEO Martine Zielke said: “In customer growth, we are above plan, also because we have invested.

“However, some time will elapse before this is reflected in profit growth.”

Stephan Engels, the bank’s finance chairman, said he was expecting a “slightly positive” result for the year as a whole.

Mr Engels said he was expecting a ‘slightly positive’ result for the year as a whole

Deutsche-Commerzbank merger not the most logical: Expert

ECB could extend QE today: Commerzbank

Commerzbank’s shares slip despite restructuring

Plans to sell the bank’s Frankfurt HQ Commerzbank Tower to the South Korean Samsung Group will raise €220m.

The bank will remain a tenant in the tallest building in Germany.

Further capital will be raised by the ending of a credit joint venture with the French bank BNP Paribas and the selling of the shares of the company providing credit services Concardis to Bain Capital and Advent will bring in €90m.
World on the EDGE: Fears of global financial crisis as ‘appetite for assets is FEROCIOUS’
By Lana Clements
PUBLISHED: 14:16, Wed, Aug 2, 2017 | UPDATED: 19:19, Wed, Aug 2, 2017

THE world is at risk of another catastrophic financial crisis as bankers are again snapping up risky loans to underpin complicated investments which are then widely sold.

The world could be facing another economic crash

Big pension funds and companies are exposed to the investments.

Even though the underlying loans are effectively junk status, credit rating agencies say the investments are triple A.

Deals in so-called collateralised loan obligations are set to be worth £56bn ($75bn), according to experts spoken to by the Financial Times.

Regulation in the US was supposed to put an end to these risky deals.

But bankers are finding ways to continue taking on the risks.

Germany’s booming economy about to BURN OUT, warns Deutsche

As in the last financial crisis, it’s thought that top ratings agencies have problems in the programmes that issue top ratings.

Some experts believe another crash isn’t possible.

According to the Financial Times, Ashish Shah, a managing director of Madison Capital Funding, said there is no need to worry about loan defaults.

He said: “The appetite for assets is ferocious.”

It comes as big companies look investments that are safe and offer high returns.

GERMAN CAR CRISIS: Nightmare for Merkel as diesel ban to see jobs lost

Credit boom DISASTER: Moody’s warning as Britons take £200bn of debts


But it’s feared risks are building that could lead to another financial crisis, such as that seen in 2007.

During this time, complicated investment products were linked to the US sub-prime housing market.

The subsequent fallout could mean a fresh round of financial devastation at a time when the economy has barely recovered from the crash 10 years ago.

You might like to search and read
” who owns the Bank of England?”
Ukcolumndotorganisation listing…
A big crash is planned…read for yourself and the bankers will benefit. Carney is there for a reason…like Draghi and Turnbull, he worked for Goldman Sachs…

Where are the agencies to monitor bad practice that failed the last time.

Norman Ghast
Can you remember when this very paper trumpeted that every family in the UK now “Owes” an additional £20,000 due to the Financial Crisis ?
How we all laughed, until we found out that , by virtue of Chancellor Gordon Brown, “Too Big To Fail”, and the fairly new concept of Privatise the Profits, Nationalise the Losses, what we had laughed at was all too obviously true.
Can the same thing happen again ? you bet it can , and will continue to do so until some bankers are duly found negligent , prosecuted and hopefully jailed, if found guilty of what is now known as Casino Banking while part of a High Street Bank.
All Firewalled now, of course, the Government has told us so, so I for one will sleep easy in my little bed, because I am a naive and trusting soul.
Still, if I wake up one morning and find that the retail sector of banks is under threat because of the actions of the banks investment sector, I will be totally astonished, slightly miffed , considerably angry. and WOULD expect prosecutions.
You see how fair minded I am ? – my first instinct would be to have a few bankers shot, more or less at random, just to get the message across (It always worked for “Uncle” Joe Stalin).
(I don’t really mean that).

It is time break the banks up into “local savings and local investment” banks and into banks that do international business and trading. At least if one goes down then nobody is too big to fail. The Banks only act so irresponsibly because they are allowed to become big enough to hold us all to ransom.

Victoria W.
Unfortunately the bankers have the power to call the shots. I think it is up to the BoE to act with integrity in the interests of country and its citizens and if that is not possible then appropriate adjustments need to take place. At the moment the bankers can do what they like with the markets because if the “trade winds” do not blow in their direction, then they will sink this ship before leaving for greener pastures, leaving us all to pick up the pieces. Is this a case of revenge by remainers? I wonder! I certainly hope not.

Someone will make a load of money scooping up undervalued assets when the price crashes.