How a marquee global bank is gradually imploding
The market cap of Deutsche Bank was roughly 2.5 times the market cap of HDFC Bank in the year 2014. By 2018, the market cap of HDFC Bank is 4 times the market cap of Deutsche Bank. What has changed in the last 5 years for Deutsche Bank? Actually, a lot! While Deutsche Bank did emerge from the 2008 crisis stronger, the real problems for Deutsche Bank started long back.
Downgrade just the tip
When Moody’s downgraded the bank and the US put Deutsche Bank on the watch list, it was just a culmination of years of capital market extravagance. Back in 1994, the German government selected Goldman Sachs to manage the privatization of Deutsche Telecom. That is when Deutsche started its aggressive capital market and investment banking shift. Over the last many years, the bank had built up immense exposures to derivatives and that is where it started.
An inorganic problem
According to insiders, the key problem for Deutsche Bank started when it adopted an ultra-aggressive approach to the investment banking business Apart from its acquisition of Morgan Grenfell and US Bankers Trust, the German bank also went about adding traders who had put business above ethics. This led to rampant mis-selling by the traders and the salespeople, which gradually added up over a period of time. There were major issues of laxity in compliance, the tendency to put business over all else and a highly mercenary approach to doing business. As a result, despite escaping the 2008 financial crisis, Deutsche Bank has gradually been sinking over the last 5 years. While HDFC Bank ranks 21st in the world in terms of market cap ranking of banks, Deutsche Bank does not even feature in the Top-100. That about sums up the actual crisis at Deutsche Bank! ©