The old sins of Deutsche Bank

MAn old proverb says that one should not praise the day before the evening. Nor should one curse the day before the evening. When the Deutsche Bank share price collapsed by up to 15 percent last Friday without warning and without any recognizable dramatic reason, warnings of serious adversity could be heard, especially in Germany, while experts in the English-speaking world considered the fall in prices to be completely exaggerated .

In the course of the evening, the share price recovered a bit: on Wall Street, it closed with a daily loss of only around 3 percent. It wasn’t that dramatic anymore. How things will continue in the coming days remains to be seen – at the start of the week, shares in Deutsche Bank started with slight increases in value.

On Friday, in turn, parallels were sought between Credit Suisse and Deutsche Bank in the history of the bank. In fact, both houses have made numerous less than creditable headlines over the past ten years. The merger rumors that circulated again and again about Credit Suisse and Deutsche Bank did neither of the two houses credit at the time. The course of the long-term share prices initially expressed a simultaneous decline of the two houses. But recently they have parted ways. While Deutsche Bank’s share price first stabilized around 2020 and then tended to recover slightly despite temporary setbacks, Credit Suisse’s share price collapsed without resistance despite a change in management associated with promises of a better future.

The instructive example of UBS

The speed with which the long-established Credit Suisse came to an end as an independent bank and the hectic pace of rescue efforts that seemed almost desperate might have had a disturbing effect. But for anyone with half a knowledge of the matter, the blatant weaknesses of a simply poorly managed Credit Suisse have long been apparent, even if the key figures relevant for the assessment by the supervisory authority looked acceptable on paper.

Old sins also cast long shadows in the financial industry. A very large bank that has been in trouble for a significant period of time is not easily repositioned in a short period of time. Extended phases of decline, which are often based on a questionable corporate culture exemplified by management, are usually characterized by a large number of weaknesses: Strategic deficits are combined with operational debacles and often inadequate internal risk controls, which facilitate entanglements in all kinds of scandals.

The example of UBS remains instructive in this respect. Before the financial crisis of 2007-2009, UBS was considered one of the best banks in the world in the industry; in terms of reputation, it is at best surpassed by JP Morgan Chase. A short time later, UBS was on the verge of collapse; considerable state aid was required to save them. It was a few more years before a change in strategy, which was linked to the appointment of Axel Weber as Chairman of the Board of Directors. After that, the bank went up again, but a look at the share price shows the efforts of the realignment.

After all, today UBS is one of the most valuable banks on the European continent with a market value of 56 billion euros, together with BNP Paribas and Santander. Deutsche Bank comes to just 18 billion euros, while Credit Suisse is down to the demoralizing 3 billion euros promised by UBS as part of the takeover.

Like UBS at the time, Deutsche Bank will need a long time to convince the financial markets of a sustainably better future. In its wild years, its CEO, Anshu Jain, who has since died, said that Deutsche Bank had to generate annual revenues of 30 billion euros and a profit of 6 billion euros. For a long time, this goal seemed unattainable. The bank almost achieved these figures last year under the leadership of Christian Sewing. What the bank now needs is a consistency in its further development that has been missing for some time. That challenge is no small one: while UBS benefited from good capital market sentiment during its renaissance, Deutsche Bank must demonstrate sustained excellence in a difficult economic environment.