Deutsche Bank A.G. Business Information, Profile, and History

History of Deutsche Bank A.G.

Deutsche Bank A.G. has weathered two world wars, three depressions, and a divided Germany to become one of the world's leading financial institutions and one of the ten largest banks in the world in the mid-1990s. It has positioned itself as a Europe-wide universal bank (one that offers a variety of services) and a global investment bank.

Deutsche Bank was founded in Berlin on March 10, 1870 with the approval of the king of Prussia. The company opened its doors for business a month later under the directorship of Georg von Siemens, with five million thalers in capital.

The company's creation coincided with the unification of Germany. After Germany's victory in the Franco-German War, France was required to pay an indemnity of FFr 5 billion, which greatly stimulated German industry, trade, and consumption. Deutsche Bank naturally assumed a position of leadership in the country's expanding economy. The founding of the Second German Reich in 1871 led to another important development: the thaler was replaced by the mark, a new currency based on gold.

Within two years, the bank had established domestic branches in Bremen and Hamburg and expanded into eastern Asia with offices in Shanghai and Yokohama. In 1872 it opened a London branch, and capital stood at 15 million thalers.

Many joint-stock banks, including Deutsche Bank, had been created in the wake of the liberalization of requirements for starting new companies, but many failed within a few years. During the financial crisis of 1873--75 it appeared that the entire economic system was on the verge of collapse; small shareholders as well as wealthy business people were ruined, and in Berlin alone nearly 50 banks filed for bankruptcy.

But Deutsche Bank, because of its concentration on foreign operations, was largely unscathed by the financial panic. With its assets intact, the young bank began to make significant acquisitions, including Deutsche Union-Bank and the Berliner Bankverein. These purchases transformed Deutsche Bank into one of Germany's largest and most prestigious banks.

In 1877 Deutsche Bank joined a syndicate of leading private banks popularly known as the "Prussian consortium." The bank was also employed by the government for the issue of state loans, and it grew rapidly in both influence and assets. By 1899 it was able to offer to float, without help from other financial institutions, a 125 million mark loan for Prussia and, at the same time, a 75 million mark loan for the German Reich.

Throughout the 1880s and 1890s Deutsche Bank was a leader in electrical development. It helped to form finance and holding companies and issued bonded loans and shares for the construction of dynamos, power plants, electric railways, tramways, and municipal lighting systems. By 1897, there were 750 power plants located across Germany. The bank also invested in the Edison General Electric Company in the United States and began to build a power plant in Argentina.

During the same period, the bank was a driving force behind railway development. In 1888, Deutsche Bank obtained a concession to build an east-west railway to open up Asiatic Turkey. A decade later, 642 miles of the Anatolian railway were in operation in Turkey, from Constantinople through Eskisehir to Ankara, and from Eskisehir to Konya. At the same time, in the United States the bank participated in the financial reorganization of Northern Pacific Railroad. All of this, of course, was done in addition to contributing significantly to the development of Germany's own extensive network of surface and underground railways.

The continuity of bank operations was uninterrupted when von Siemens died in October 1901. At Deutsche Bank, like most other German banks, all decisions are made by the board of directors, and the board customarily takes credit for the company's successes. The firm has no official chairman, but selects one board member to act as "spokesman." Thus the absence of von Siemens had little effect on the bank, since management by consensus is the bank's guiding principle.

By the early years of the 20th century, the company had acquired the Bergische-Markische Bank, the Schlesischer Bankverein, and interests in the Hannoversche Bank, the Oberrheinische Bank, and the Rheinische Creditbank, and in Italy, participation in the founding of Banca Commerciale Italiana. The bank's capital was now more than six times the amount it was founded with.

The bank then entered a period of consolidation and growth: it built up its sub-branches; improved and extended customer services; paid particular attention to the deposit business; and promoted checks for personal use. In association with numerous regional banks, Deutsche Bank also became involved in a wide range of business activities, including transportation, coal, steel, and oil, as well as railways and electrification. Shortly before World War I, with 200 million marks in capital backed by a 112.5 million mark reserve and deposits and borrowed funds of 1.58 billion marks, the Frankfurter Zeitung called it the world's leading bank.

Deutsche Bank weathered the many economic problems during World War I; at the end of the conflict, the bank had offices at 182 locations throughout Germany, and a staff of nearly 14,000. But with the war lost, the German empire gone, and the transition from monarchy to democracy threatened by revolution, Allied demands for reparations totaling 132 billion gold marks pushed the German banking system to the brink of ruin. By 1923, one gold mark was worth 1 trillion paper marks.

In 1929, as financial chaos loomed, Deutsche Bank merged with its 20-year rival, the Disconto-Gesellschaft. At the time of their merger the banks were the two largest in Germany; combined, their capital, reserves, and deposits were each at least twice as large as that of any competitor. The merger, designed to cut administrative costs by closing competing operations, was very successful, and the resulting bank had enough capital and reserves to withstand the economic crisis. Before the collapse, Deutsche Bank and Disconto-Gesellschaft had handled about 50 percent of all business conducted by Berlin banks. By 1931, the bank was relying heavily on its undisclosed reserves and had twice reduced capital, but it remained solvent and required no government aid.

Under orders from the National Socialist government that came to power in 1933, unemployed workers were put to work under a "reemployment" plan. At first, the government only concentrated on projects that were meant to counteract the high unemployment rate; the autobahns were the chief showpiece of this strategy. But by 1936, a significant percentage of industrial production had been switched to the manufacture of weapons and munitions and "reemployment" had become "rearmament." Deutsche Bank supported the program through the purchase of government securities.

During World War II, the government financed its budget deficit by printing new money, a misguided practice that quickly led to spiraling inflation. The problem was artificially suppressed by questionable banking measures; more treasury paper began to appear among the bank's assets. Deutsche Bank's enormous losses were made known only when Germany surrendered to the Allies in April 1945.

After the war, Allied occupation authorities investigating possible war crimes committed by German banks found that Deutsche Bank and its rival Dresdner Bank bore substantial responsibility for the war through their lending to the Nazi government, their purchase of government securities, and the influence that they exerted over large industrial concerns through their shareholdings and corporate directorships. Both banks also had close ties to SS chief Heinrich Himmler and other Nazi officials, had exploited conquered nations by seizing the assets of their financial institutions, and had helped disenfranchise Jews in Germany. Four directors (including one Nazi Party member) and two executives of Deutsche Bank were arrested by the Allied authorities, but were never tried.

After lengthy negotiations with the occupying forces, Deutsche Bank's ten regional institutions were formed into three banks: Norddeutsche Bank A.G., Rheinisch-Westfalische Bank A.G., and Suddeutsche Bank A.G. served the northern, central, and southern areas of West Germany respectively. In 1957, these three banks were again reorganized, this time to form a single Deutsche Bank A.G. with corporate headquarters in Frankfurt. At the time of its reunification, the bank employed over 16,000 people and its assets totaled 8.4 billion marks. Hermann J. Abs, the strategist behind the reorganization of the bank and one of the key figures in West Germany's financial recovery, became its spokesman.

In the 1960s Deutsche Bank concentrated on improving services for its smaller depositors. The bank launched programs for personal loans of up to DM 2,000 and medium-sized loans up to DM 6,000 for specific purchases, as well as an overdraft facility of up to DM 1,000 for consumers. Other services included personal mortgage loans, improvements in savings facilities, and the establishment of a eurocheque system. By the end of the decade, the bank had become the largest provider of consumer credit in West Germany.

Under the direction of Abs, Deutsche Bank began to reestablish its international operations (it had lost all of its worldwide holdings after the war). It first reopened offices in Buenos Aires, Sao Paulo, and Rosario, Argentina, and then in Tokyo, Istanbul, Cairo, Beirut, and Teheran. In 1968, Deutsche Bank joined the Netherlands' Amsterdam-Rotterdam Bank, Britain's Midland Bank, and Belgium's Societe Generale de Banque in founding the European-American Bank & Trust Company in New York. And in 1972 Deutsche Bank founded Eurasbank (European Asian Bank) with members of the same consortium.

When Hermann Abs retired in 1967, his place as spokesman was taken by Karl Klusen and Franz Heinrich Ulrich, who became co-spokesmen. Abs had wielded such a great concentration of economic and financial power that a special law limiting such influence was named after him--"Lex Abs" reduced the number of supervisory-board seats a single person could hold simultaneously in West Germany.

During the 1970s Deutsche Bank became the dominant financial institution in West Germany. Under the guidelines of the "universal banking" system in place in Germany for more than a century, commercial banks are allowed to hold unlimited interests in industrial companies, underwrite and trade securities on their own, and play the foreign currency markets, in addition to providing credit and accepting deposits. Deutsche Bank took advantage of this rule during the 1960s and 1970s by investing in a wide range of industrial companies. In 1979, the bank held seats on the supervisory boards of about 140 companies, among them Daimler-Benz, Volkswagen, Siemens, AEG, Thyssen, Bayer, Nixdorf, Allianz, and Philipp Holzmann.

But the bank's extraordinary influence in West Germany aroused concern about the extent of the bank's instruments in other companies. As a result of these concerns, Deutsche Bank began to reduce its industrial holdings in the 1970s. This trend, however, was briefly interrupted in 1975 when Middle Eastern concerns flush with petrodollars supplanted the big banks as a source of capital investment. At the request of Chancellor Helmut Schmidt, Deutsche Bank purchased a 29 percent interest in Daimler-Benz from industrialist Friederich Flick to ensure that it would stay in German hands, with the understanding that the bank would resell the shares once the crisis had passed. Deutsche Bank already owned 25 percent of the famed automaker. In December of that year, it resold the shares to a consortium that included Commerzbank, Dresdner Bank, and Bayerische Landesbank.

During the 1980s, Deutsche Bank made major expansions in its foreign operations, both in commercial banking and investment banking. It opened its first U.S. branch office in New York in 1979, and by 1987 had bought out all its partners in the Eurasbank consortium and renamed it Deutsche Bank (Asia), providing 14 more branches in 12 Asian countries. At nearly the same time, the company's capital-markets branch began operating and trading in Japanese, British, and American securities. By the end of 1988, the bank had approximately 7.2 million customers at 1,530 offices, more than 200 of them outside of West Germany.

In 1980 Deutsche Bank was the only one of the West German Big Three banks to turn a healthy profit. Unlike Commerzbank and Dresdner Bank, the other two of the Big Three, Deutsche Bank did not overexpand, but remained cautious in the face of high interest rates and continued recession. In 1984 it acquired a 4.9 percent stake in Morgan Grenfell, the British securities firm; in 1985 it bought scandal-plagued industrial giant Flick Industrieverwaltung from Friederich Flick, with the intention of taking it public; and in 1988 it acquired a 2.5 percent interest in the automaker Fiat. Another sign of Deutsche Bank's aggressive pursuit of foreign markets is the fact that in the wake of the stock market crash in October 1987, at a time when massive layoffs were taking place in the securities industry, its American securities affiliate, Deutsche Bank Capital Corporation, expanded its work force. In 1988 Deutsche Bank entered the treasury securities market at a time when many foreign firms were leaving. Two years later, the U.S. Federal Reserve recognized Deutsche Bank Government Securities Inc. as a primary dealer of government securities.

At home, Deutsche Bank took a large and controversial step toward becoming a one-stop financial service center in 1989 when it created its own insurance subsidiary to complement its commercial and investment banking businesses. Immediately, it was considered a strong rival for the Allianz Group, the West German-based company that was Europe's largest insurer.

Wilhelm Christians and Alfred Herrhausen became Deutsche Bank's new co-spokesmen in 1985. When Christians retired in early 1988, Herrhausen was appointed sole spokesman for the bank. Following Herrhausen's assassination by terrorists on November 30, 1989, Hilmar Kopper became spokesman.

In the late 1980s and early 1990s, Deutsche Bank bolstered its investment banking arm through additional acquisitions, aiming to become a global investment bank. After acquiring the Toronto-based investment bank McLean McCarthy Ltd. in 1988, it purchased the remainder of Morgan Grenfell in 1989 for $1.5 billion. It also took a more aggressive approach to the North America market. In 1992 Deutsche Bank North America was formed--with John A. Rolls as chief executive officer&mdashø coordinate and manage all of Deutsche Bank's North American operations, including those in investment banking which included McLean McCarthy and C. J. Lawrence Inc., the latter a U.S. investment bank acquired in 1986. The following year Deutsche Bank Securities Corporation was formed to specifically manage such areas as investment banking, securities transactions, and asset management services.

At the same time it aimed to become a global investment bank, Deutsche Bank also pursued a strategy of extending its position as a universal bank beyond Germany. Initially, it focused on Western Europe. But with the fall of communism throughout Eastern Europe in 1989 and 1990, Deutsche Bank sought to become a Europe-wide universal bank. To that end, in 1986 it had acquired Banca d'America e d'Italia S.p.A. from the Bank of America for $603 million (in 1994 this bank was renamed Deutsche Bank S.p.A.). In 1993 Deutsche Bank increased its presence in Italy when it purchased a majority interest in Banca Popolare di Lecco. That same year, the bank purchased Banco de Madrid in Spain, later integrated into Deutsche Bank, S.A.E. By 1994 Deutsche Bank operated 260 branches in Italy and 318 branches in Spain, and in both countries it was the largest foreign bank.

Following German reunification, Deutsche Bank quickly capitalized on the opportunity by entering into a joint venture with Deutsche Kreditbank to begin to restake its claim to eastern German territory. By 1994, Deutsche Bank had more than 300 branches in eastern Germany. It also opened offices elsewhere in Eastern Europe: Bulgaria, the Czech Republic, Hungary, Poland, and Russia.

The early 1990s were a time of rising fortunes for Deutsche Bank as net income more than doubled from DM 1,025 billion in 1990 to DM 2,243 billion in 1993. This trend was reversed in 1994 when a series of problems hit within a short period. First the bank suffered huge losses from loans of DM 1.2 billion it had made to a property group run by Jurgen Schneider, which collapsed in early 1994. Then two firms in which Deutsche Bank had invested heavily ran into trouble--Balsam filed for bankruptcy and Metallgesellschaft (MG), an engineering conglomerate, nearly collapsed after losing $1.33 billion on speculative oil trades. Kopper provoked additional controversy and public resentment when he called bills amounting to $33 million that the Schneider property group owed to construction workers "peanuts." Early in 1995 the former head of MG sued Deutsche Bank over who was responsible for MG's downfall. Also in early 1995, Deutsche Bank's ties to the Nazi government of Hitler were dredged up when East German files were made public for the first time.

The losses it suffered in 1994 forced Deutsche Bank to increase its loss reserves which contributed to a reduction in net income to DM 1,360 billion. In 1995 Deutsche Bank made significant moves to further establish itself as a global investment bank. Deutsche Bank North America acquired ITT Commercial Finance Corporation for $868 million to strengthen its presence in asset-based lending. The acquisition was immediately renamed Deutsche Financial Services Corporation. Later in 1995 Deutsche Bank consolidated all of its investment banking operations into Morgan Grenfell under a new unit, Deutsche Morgan Grenfell, based in London and headed by Ronaldo Schmitz. The move shifted more than half of Deutsche Bank's business to London control rather than that of Frankfurt, a shift that the European called a "corporate revolution."

In the mid-1990s Deutsche Bank held a strong position in Europe as a universal bank--though not equally strong in each country--and was rapidly gaining ground on its global rivals in investment banking. With very deep pockets, Deutsche Bank was equipped to sustain its two-prong strategy and to become stronger through additional acquisitions and expansions.

Principal Subsidiaries: ALD AutoLeasing D G.m.b.H.; Bonndata Gesellschaft für Datenverarbeitung m.b.H.; Bonnfinanz A.G. für Vermögensberatung und Vermittlung; DB Export-Leasing G.m.b.H.; DB Research G.m.b.H. Gesellschaft für Wirtschafts- und Finanzanalyze; Deutsche Asset Management G.m.b.H.; Deutsche Bank Bauspar-A.G.; Deutsche Bank Lübeck A.G.; Deutsche Bank Saar A.G.; Deutsche Centralbodenkredit-A.G.; Deutsche Gesellschaft für Fondsverwaltung m.b.H.; Deutsche Gesellschaft für Mittelstandsberatung m.b.H.; Deutsche Grundbesitz-Investmentgesellschaft m.b.H.; Deutsche Immobilien Leasing G.m.b.H.; Deutsche Immobilien Anlagegesellschaft m.b.H.; Deutsche Immobilienvermittlungs-Holding G.m.b.H.; Deutscher Herold Allgemeine Versicherungs-A.G.; Deutscher Herold Lebensversicherungs-A.G.; Deutscher Herold Rechtsschutzversicherungs-A.G.; DWS Deutsche Gesellschaft für Wertpapiersparen m.b.H.; Frankfurter Hypothekenbank A.G.; GEFA Gesellschaft für Absatzfinanzierung m.b.H.; GEFA-Leasing G.m.b.H.; Globale Krankenversicherungs-A.G.; Grunelius KG Privatbankiers; Lebensversicherungs-A.G. der Deutschen Bank; Lübecker Hypothekenbank A.G.; Morgan Grenfall G.m.b.H.; Roland Berger & Partner Holding G.m.b.H.; Schiffshypothekenbank zu Lübeck A.G.; Deutsche Bank (Austria) A.G.; DB (Belgium) Finance S.A./N.V.; DB Bourse S.N.C. (France); Deutsche Bank France S.N.C.; DB Vita Compagnia di Assicurazioni e Riassicurazioni sulla Vita S.p.A. (Italy); Deutsche Bank Factoring S.p.A. (Italy); Deutsche Bank Fondi S.p.A. (Italy); Deutsche Bank Leasing S.p.A. (Italy); Deutsche Bank Securities SIM S.p.A. (Italy); Deutsche Bank Società per Azioni (Italy); Deutsche Bank Luxembourg S.A.; DB Investment Management S.A. (Luxembourg); Europäische Hypothekenbank S.A. (Luxembourg); Deutsche Bank de Bary N.V. (the Netherlands); DB Leasing - Sociedade de Locação Financeira Mobiliária, S.A. (Portugal); Deutsche Bank de Investimento, S.A. (Portugal); DB Gestión Sociedad Gestora de Instituciones de Inversión Colectiva, S.A. (Spain); DB Securities Sociedad de Valores y Bolsa, S.A. (Spain); DB Vida Compañía de Seguros y Reaseguros, S.A. (Spain); Deutsche Bank Credit, S.A. (Spain); Deutsche Bank, Sociedad Anónima Española (Spain); Deutsche Bank (Suisse) S.A.; Deutsche Bank Gilts Ltd. (U.K.); Deutsche Sharps Pixley Metals Ltd. (U.K.); Morgan Grenfall & Co. Ltd. (U.K.); Morgan Grenfall Asset Management Ltd. (U.K.); Morgan Grenfall Development Capital Ltd. (U.K.); D.B. Investment Management S.A. (Argentina); Deutsche Bank Argentina S.A.; Deutsche Bank Argentina Sociedad de Bolsa S.A. (Argentina); Deutsche Bank S.A. - Banco Alemão (Brazil); Deutsche Bank (Canada); Deutsche Bank Securities Canada Limitied; Morgan Grenfall (C.I.) Ltd.; Deutsche Bank Financial Products Corp. (U.S.); Deutsche Bank Futures Corp. (U.S.); Deutsche Bank Sharps Pixley Inc. (U.S.); Deutsche Bank Trust Company (U.S.); Deutsche Credit Corp. (U.S.); Deutsche Financial Services Corporation (U.S.); Deutsche Financial Services Holding Corporation (U.S.); Deutsche Morgan Grenfell/C. J. Lawrence Inc. (U.S.); Deutsche Sharps Pixley Metals Inc. (U.S.); Bain & Company Ltd. (Australia); Deutsche Bank Capital Markets (Asia) Ltd. (Hong Kong); Deutsche Bank (Malaysia) Bhd.; Deutsche Bank (Asia

Pacific) Ltd. (Singapore); Morgan Grenfall Asia Holdings Pte. Ltd. (Singapore).