Macaskill on markets: Deutsche Bank – too little, too late on telling right from wrong

By:
Jon Macaskill
Published on:

The Las Vegas casino that Deutsche Bank finally managed to sell just before announcing its most recent capital increase – The Cosmopolitan – uses the catchphrase “Just the right amount of wrong” to tempt customers.

Deutsche Bank shareholders, and the current management, must be hoping that just the right amount of wrong is uncovered by regulators investigating the firm, so that the bank can use incoming capital of over €8 billion primarily to fund its bet on a rebound in the fixed-income markets, rather than simply paying fines for previous crimes and misdemeanours.

Two days after Deutsche Bank announced its capital-raising plan in late May, German regulator BaFin said that it had uncovered evidence of rigging of the foreign exchange markets. This will have raised blood pressure levels both within the Deutsche Bank executive ranks and among shareholders, given that the bank is a dominant player in FX. 

slot machine


No names were named by the regulator, but given that Deutsche Bank was the longstanding number one in the sector – only narrowly losing its title to Citi in this year’s Euromoney survey of FX users – there is an obvious concern that some staff members will be implicated as the results of investigations are delivered, fines are levied and private-sector litigation begins to bite.

Deutsche Bank CFO Stefan Krause warned that litigation costs remain under upward pressure, especially in the US, when he took part in the presentation announcing the latest capital increase by the bank, and regulators appear determined to squeeze banks for prior malpractice. 

The $2.6 billion fine on Credit Suisse for enabling tax evasion in the US is expected to be succeeded by a bigger levy on BNP Paribas for sanctions-busting and there are various interest rate rigging inquiries that have not fully concluded, to go along with the more recently started investigation into FX.

Business conduct

Against this backdrop, the most recent attempt by Deutsche Bank management to show that it is serious about changing the culture of investment banking looked like too little, way too late.

A warning about business conduct to staff members by investment banking co-head Colin Fan also raised questions about what specific behaviour it was designed to address.

Fan told employees not to be "boastful, indiscreet and vulgar", thus creating new demand for insight into whatever emails or other communications have been uncovered demonstrating these three undesirable traits.

The warning itself was delivered via a video, which then surfaced on the FT’s website. This led conspiracy theorists to speculate that it was intentionally leaked, given that most banks now have systems that prevent employees from forwarding internal communications.

Whether the message was disseminated to the wider world intentionally or not, it certainly seemed to breach one of the new tenets of investment banking communications: leave a light footprint.

Goldman Sachs was a pioneer in this shift, after it was embarrassed by a series of emails relating to its highly nuanced approach to trading of mortgage-backed securities before the credit crisis. The approach was in fact so nuanced that it could easily be mistaken for a policy of treating clients like mugs, so Goldman decided that most communications about potentially problematic deals should take place away from email.

Conversations on recorded phone lines can bring problems of their own, as so many interdealer brokers and their clients at banks A through H (as they are typically described in regulatory charges) can attest.

That leaves person-to-person meetings as the last place where you can safely be boastful, indiscreet and vulgar. That sort of behaviour would not be approved by Colin Fan, of course. But if you don’t crack and confess to any or all of these three deadly sins of modern investment banking, you might just get away with it.