Monday 7 December 2015

Deutsche Bank AG Bank Of Germany

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Deutsche Bank was founded in Berlin in 1870 as a specialist bank for foreign trade.[12] The bank's statute was adopted on 22 January 1870, and on 10 March 1870 the Prussian government granted it a banking license. The statute laid great stress on foreign business:
The object of the company is to transact banking business of all kinds, in particular to promote and facilitate trade relations between Germany, other European countries and overseas markets.[13]
Three of the founders were Georg Siemens whose father's cousin had founded Siemens and Halske, Adelbert Delbrück and L. Bamberger.[14] Previous to the founding of Deutsche Bank, German importers and exporters were dependent upon English and French banking institutions in the world markets—a serious handicap in that German bills were almost unknown in international commerce, generally disliked and subject to a higher rate of discount than English or French bills.[15]

Founding members

First directors

The bank's first domestic branches, inaugurated in 1871 and 1872, were opened in Bremen[16] and Hamburg.[17] Its first foray overseas came shortly afterwards, in Shanghai (1872)[18] and London (1873) [19] followed sometime by South America (1874-1886).[14] The branch opening in London, after one failure and another partially successful attempt, was a prime necessity for the establishment of credit for the German trade in what was then the world's money center.[15]
Major projects in the early years of the bank included the Northern Pacific Railroad in the US[20] and the Baghdad Railway[21] (1888). In Germany, the bank was instrumental in the financing of bond offerings of steel company Krupp (1879) and introduced the chemical company Bayer to the Berlin stock market.
The second half of the 1890s saw the beginning of a new period of expansion at Deutsche Bank. The bank formed alliances with large regional banks, giving itself an entrée into Germany's main industrial regions. Joint ventures were symptomatic of the concentration then under way in the German banking industry. For Deutsche Bank, domestic branches of its own were still something of a rarity at the time; the Frankfurt branch[22] dated from 1886 and the Munich branch from 1892, while further branches were established in Dresden and Leipzig[23] in 1901.
In addition, the bank rapidly perceived the value of specialist institutions for the promotion of foreign business. Gentle pressure from the Foreign Ministry played a part in the establishment of Deutsche Ueberseeische Bank[24] in 1886 and the stake taken in the newly established Deutsch-Asiatische Bank[25] three years later, but the success of those companies in showed that their existence made sound commercial sense.

Leveraged super-senior trades

Former employees including Eric Ben-Artzi and Matthew Simpson have claimed that during the crisis Deutsche failed to recognise up to $12bn of paper losses on their $130bn portfolio of leveraged super senior trades, although the bank rejects the claims.[38] A company document of May 2009 described the trades as "the largest risk in the trading book",[39] and the whistleblowers allege that had the bank accounted properly for its positions its capital would have fallen to the extent that it might have needed a government bailout.[38] One of them claims that "If Lehman Brothers didn’t have to mark its books for six months it might still be in business, and if Deutsche had marked its books it might have been in the same position as Lehman."[39]
Deutsche had become the biggest operator in this market, which were a form of credit derivative designed to behave like the most senior tranche of a CDO.[39] Deutsche bought insurance against default by blue-chip companies from investors, mostly Canadian pension funds, who received a stream of insurance premiums as income in return for posting a small amount of collateral.[39] The bank then sold protection to US investors via the CDX credit index, the spread between the two was tiny but was worth $270m over the 7 years of the trade.[39] It was considered very unlikely that many blue chips would have problems at the same time, so Deutsche required collateral of just 10% of the contract value.
The risk of Deutsche taking large losses if the collateral was wiped out in a crisis, was called the gap option.[39] Ben-Artzi claims that after modelling came up with "economically unfeasible" results, Deutsche accounted for the gap option first with a simple 15% "haircut" on the trades (described as inadequate by another employee in 2006) and then in 2008 by a $1–2bn reserve for the credit correlation desk designed to cover all risks, not just the gap option.[39] In October 2008 they stopped modelling the gap option and just bought S&P put options to guard against further market disruption, but one of the whistleblowers has described this as an inappropriate hedge.[39] A model from Ben-Artzi's previous job at Goldman Sachs suggested that the gap option was worth about 8% of the value of the trades, worth $10.4bn. Simpson claims that traders were not simply understating the gap option but actively mismarking the value of their trades.[39]

European financial crisis

Main article: European sovereign-debt crisis
Deutsche Bank has a negligible exposure to Greece. Spain and Italy however account for a tenth of its European private and corporate banking business. According to the bank's own statistics the credit risks in these countries are about €18 billion (Italy) and €12 billion (Spain).[40]
For the 2008 financial year, Deutsche Bank reported its first annual loss in five decades.[citation needed], despite receiving billions of dollars from its insurance arrangements with AIG, including US$11.8 billion from funds provided by US taxpayers to bail out AIG.[41]
Based on a preliminary estimation from the European Banking Authority (EBA) in October 2011, Deutsche Bank AG needed to raise capital of about €1.2 billion (US$1.7 billion) as part of a required 9 percent core Tier 1 ratio after sovereign debt writedown starting in mid-2012.[42]

Consolidation

Due to Deutsche Bank Capital Ratio Tier-1 (CET1) is only 11.4 percent or lower than median of CET1 ratio of Europe’s 24 biggest publicly-traded banks with 12 percent, so there will no dividen for 2015 and 2016, furthermore the bank cuts 15,000 jobs.[43][44]

April 2015 Libor scandal

See also: Libor scandal
On 23 April 2015, Deutsche Bank agreed to a combined US$2.5 billion in fines – a US$2.175 billion fine by American regulators, and a €227 million penalty by British authorities – for its involvement in the Libor scandal. The company also pled guilty to wire fraud, acknowledging that at least 29 employees had engaged in illegal activity. It will be required to dismiss all employees who were involved with the fraudulent transactions.[45] However, no individuals will be charged with criminal wrongdoing. In a Libor first, Deutsche Bank will be required to install an independent monitor.[46] Commenting on the fine, Britain's Financial Conduct Authority director Georgina Philippou said "This case stands out for the seriousness and duration of the breaches ... One division at Deutsche Bank had a culture of generating profits without proper regard to the integrity of the market. This wasn't limited to a few individuals but, on certain desks, it appeared deeply ingrained."[45] The fine represented a record for interest rate related cases, eclipsing a $1.5 billion Libor related fine to UBS, and the then-record $450 million fine assessed to Barclays earlier in the case.[45][46] The size of the fine reflected the breadth of wrongdoing at Deutsche Bank, the bank's poor oversight of traders, and its failure to take action when it uncovered signs of abuse internally.[46]

Sanctions violations

On 5 November 2015, Deutsche Bank was ordered to pay US$258 million (€237.2 million) in penalties imposed by the New York State Department of Financial Services and the United States Federal Reserve Bank after the bank was caught doing business with Burma, Libya, Sudan, Iran, and Syria which were under US sanctions at the time. According to the US federal authorities, Deutsche Bank handled US$27,200-clearing transactions valued at more than US$10.86 billion (€9.98 billion) to help evade US sanctions between early-1999 until 2006 which are done on behalf of Iranian, Libyan, Syrian, Burmese, and Sudanese financial institutions and other entities subject to US sanctions, including entities on the Specially Designated Nationals by the Office of Foreign Assets Control.[47][48]
In response to the penalties, the bank will pay US$200 million (€184 million) to the NYDFS while the rest (US$58 million; €53.3 million) will go to the Federal Reserve. In addition to the payment, the bank will install an independent monitor, fire six employees who were involved in the incident, and ban three other employees from any work involving the bank's US-based operations.[49] The bank is still under investigation by the US Justice Department and NYDFS into possible sanctions violations relating to the 2014-15 Ukrainian crisis and its activities within Russia.[50]

Performance

Year 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003
Net Income €1.7bn €0.7bn €0.3bn €4.3bn €2.3bn €5.0bn €-3.9bn €6.5bn €6.1bn €3.5bn €2.5bn €1.4bn
Revenues €31.9bn €31.9bn €33.7bn €33.2bn €28.6bn €28.0bn €13.5bn €30.7bn €28.5bn €25.6bn €21.9bn €21.3bn
Return on equity 5.1% 2.6% - - 5% 18% -29% 30% 26% 16% 1% 7%
Dividend 0.75 - - - 0.75 0.75 0.5 4.5 4.0 2.5 1.7 1.5
[citation needed]
The bank has been widely recognized[51] for its transformation over the ten years between 2002 until 2012 for moving from a German-centric organization that was renowned for its retail and commercial presence to a global investment bank that is less reliant on its traditional markets for its profitability.[52] Deutsche Bank was named International Financing Review's Bank of the Year twice in a three-year period, in 2003 and 2005. It also won the prize in 2010.[53] In 2012, for the second time in three years, Deutsche Bank was named Best Global Investment Bank in the annual Euromoney Awards for Excellence.[54]
In December 2012, International Financing Review (IFR) recognized Deutsche Bank as its Equity House of the Year and Bond House of the Year 2012. This is the first time the Bank has been named Equity House of the Year and the sixth time that it has won the top Bond award. Deutsche Bank is also the only European bank to have been awarded the top Equity and Bond awards in the same year. Highlighting the Bank's success in equities, IFR said: "Deutsche led major IPOs, took on tough risk positions (especially in Europe) and became one of the preferred banks of the US Treasury." IFR also praised the Bank’s "fortitude and skill" in bond markets, saying it combined "a steady hand with solid execution to get all kinds of deals done in just about every corner of the globe."[citation needed]
Deutsche Bank won a further seven IFR awards:
  • Commodity Derivatives House
  • EMEA Structured Equity House
  • EMEA Loan House
  • EMEA High-Yield Bond House
  • EMEA Liability Management House
  • SSAR Bond House
  • Sterling Bond House
    
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