Dresdner Bank A.G. Business Information, Profile, and History
Federal Republic of Germany
History of Dresdner Bank A.G.
When Carl Freiherr von Kaskel, Felix Freiherr, and Eugene Gutman opened the doors of the Dresden Bankhaus for business in Dresden on December 1, 1872, the time was ripe for new banks in Germany. Before its victory over France in 1871 organized Germany as a modern nation-state, there had not even been standardized units of currency, weight, or measurement. The opportunity for economic growth was enormous, and the management team of Dresdner Bank seized it with a vengeance.
As a universal bank, Dresdner Bank was formulated to serve all of the economic needs of its community. The role of the big banks in Germany is closely related to developing industries and expanding commercial opportunities. Accordingly, Dresdner Bank expanded rapidly in its first decade through a series of acquisitions, liquidations, and absorptions of smaller institutions. Though sometimes criticized for being unusually willing to assume risks, the management team of Dresdner Bank, led especially by Eugene Gutman, quickly made Dresdner the number-two financial institution in Germany, behind only Deutsche Bank, a position which the bank still holds today.
In 1884 Dresdner Bank moved its headquarters from Dresden to Berlin and then spent the rest of the decade expanding even more vigorously. Seeing the potential for growth in foreign markets, Dresdner began opening interests in Asia and Italy. This eye for expansion would continue to make Dresdner grow until its foreign interests were lost after World War I. Dresdner's huge credit reserve, like that of the other large German banks, also helped Germany transform itself from a capital importing to a capital exporting economy during the 1880s.
Dresdner opened new branches in Hamburg in 1892 and in Bremen and London in 1895. The London branch was especially significant for the bank because London was the financial center of the world at that time; it gave the company 19 highly profitable years before the onset of World War I.
At this time Dresdner developed close relations with the electro-technical, rail, and oil industries, which allowed it to build, with Deutsche Bank, a railroad line from Constantinople to Ankara, then an important line of transportation. The foundation of the Central Bank for Railway Securities by Dresdner in 1898 further cemented the relationship between the bank and the railroad industry.
In the early years of the 20th century Dresdner's continuous expansion made it a true giant of German industry. Dresdner achieved unprecedented success in the deposit business between 1896 and 1908 largely through innovative marketing techniques and the bold move of offering higher interest rates to deposit customers to draw a profitable volume of business.
In the first decade of this century, Dresdner formed a community of interest with Schaffhausenschor Bankverein in 1903, opened stock companies to start trade with Asia and South America, formed 27 branches through absorption of smaller banks, and formed an alliance with the American bank J.P. Morgan and Company to engage in international finance.
Of the four endeavors, the community of interest with Schaffhausenschor increased Dresdner's power the most. As Dresdner had always been a huge success in international business and its partner had long shown a genius for domestic banking, the alliance was a natural one, and the standings of both firms increased greatly as they shared profits and policies.
World War I and its aftermath were a disaster for almost every company in Germany. Dresdner Bank, which had profited by financing the government's astronomical war-time expenses, found that the German economy's unpreparedness for war, coupled with the Allied blockade and the industrial might of the United States, crippled non-military industries. The war dried up all opportunities for continued expansion and placed a tremendous burden on German industry, forcing it to produce the materials necessary for war on an unprecedented scale. This stifled the basic expansionist impulse of the bank and cut off investment revenue.
The short-lived Weimar Republic (1918-1923) was also difficult for Dresdner Bank. The burden of Germany's heavy war reparations stultified the entire economy. This hurt Dresdner even more than the lack of expansion during the war years had. Since one of the primary reasons for a universal bank is to back developing industry, Dresdner, as a major shareholder in many German firms, felt the pinch of the Treaty of Versailles as sharply as the rest of Germany did. On top of this was the Allies' insistence that all Allied countries be given the right to confiscate any German private property abroad. Firms with international interests as extensive as Dresdner's experienced crushing setbacks as they lost vast international securities and capital holdings.
The loss of wealth coupled with the need to pay reparations produced the legendary hyperinflation of the Weimer Republic, further cutting into the German banking business. At the high point of economic chaos, in 1923, Dresdner held assets of 204 trillion marks. Three years later, when the banking industry was stabilized by the introduction of the Rentenmark, Dresdner's share capital and reserves totaled only 100 million Rentenmarks.
Between 1924 and 1929, Dresdner Bank was involved in a lending policy that brought economic chaos to Germany again in 1931. During those five years, Germany began to rebound economically. In 1929, the economy's volume of business was 50% greater than it was before the war. This was due largely to the capital loans that Dresdner and the other leading banks made to new and developing German industries. But the banks were too loyal to their customers and lent out too much money. When the effects of the American stock market crash of 1929 hit Germany in 1931, there was little cash on hand to pay investors. Also, Dresdner and the other big banks carried too much foreign credit. They needed foreign capital coming in to pay the interest. This bank crisis necessitated federal involvement: in 1931 the German government took over 90 & percnt; of Dresdner.
Dresdner did benefit somewhat, however, from the government's plan to restructure the banks and keep credit rates down by buying up banks and giving them cash. In the year after the crash, Dresdner was able to buy another of the major Berlin banks, Darmstadter, making Dresdner for a time the largest bank in Germany.
When the Nazis assumed power in 1933, the banking crisis was far from over. The Big Three of Berlin (now Dresdner, Deutsche, and Commerzbank) had lost 1.3 billion marks in assets and capital in the previous two years. Ostensibly socialists, the Nazis were inclined to completely nationalize all the German banks under the absolute power of the Third Reich. The domination of the big banks had long fostered a populist resentment, which the Nazis carefully exploited. Dresdner Bank, as the fattest financial goose among the banks, was the chief target for total and irrevocable nationalization.
In the end, the banks were not nationalized, and Dresdner Bank prospered under state-regulated capitalism. In 1937 Dresdner was able to buy itself back from the government. Its size increased in 1939, when Länderbank, the second-largest bank in Austria, merged with Dresdner after the Anschluss in Austria. The Vienna branch of a Czech bank, Zivnostenska, was also annexed.
Dresdner's relationship with the Nazi government led to dire consequences after the conclusion of World War II. As one of the privileges of leadership, Hermann Goering was allowed to have a company of his own, Goering Werke, an iron ore processing works whose products were in heavy demand during the Nazi war buildup. A representative of Dresdner, Karl Rasche, sat on the management board of a subsidiary of Goering Werke. This was not unusual; having representatives on boards and councils, as well as controlling blocks of voting stock shares, are the chief ways that the big German banks exercise economic control. But Karl Rasche's presence on the board of a Goering Werke subsidiary during this time was later considered positive evidence by the Allies that Dresdner had not only escaped being socialized by the Nazis, but that it had maintained a close relationship with the Nazi government.
After World War II, Dresdner and the other large German banks were split up. Once again it lost branches and assets to the war's victors. With the Soviet occupation of East Germany, all of Dresdner's offices east of the Oder-Neisse line were closed permanently. Of Dresdner's total of 327 offices, only about half remained open, and most of those were badly damaged. Dresdner was at first restructured into ten separate institutions. The bank struggled to regain some of its prominence during the early postwar years but then faced another reformation from the Liquidation Commission.
The Liquidation Commission was formed by the occupation forces to study the roles that various companies and industries had played in the war economy of Nazi Germany. Citing the "silent financing" of the German war effort through loans, as well as direct links of the kind previously noted, the Liquidation Commission decided to restructure Dresdner Bank into 11 small banks, each of which could operate only within its own zone of occupation. Yet Dresdner Bank was, like Germany itself, impossible to keep down. In 1952 the 11 regional banks were turned into three successor institutions of Dresdner Bank. Each of the three derivative banks prospered so much as a part of the "economic miracle" of the 1950s that Dresdner was allowed to recombine itself again in 1957 as Dresdner Bank A.G., with its new headquarters in Frankfurt am Main.
Reunification meant more than gaining domestic strength for the new Dresdner Bank: it meant the bank could expand once again. Dresdner immediately took advantage of its situation and became the first German bank to open an office overseas after World War II when it established a representative station in Istanbul in the late 1950s.
Dresdner also expanded through technical innovation, using data processing systems to manage accounts in 1958, the first West German firm to do so. Dresdner also pioneered the way for foreign stock shares to be traded on West German exchanges at about this time.
When the restrictions limiting the three major branches of Dresdner from operating outside of their zones of occupation were lifted in 1963, the domestic business needed to finance foreign expansion was finally available, and the bank started to become the international giant that it is today. Dresdner again pioneered overseas business dealings by becoming the first firm to set up a German bank outside of its own borders, opening the Company Luxemburgeoise de Banque S.A. in Luxembourg in 1967.
Dresdner continued to expand, opening branches in Singapore and New York in 1972. By developing these overseas connections, the bank was able to outgrow its involvement in various consortiums with other banks and became truly international on its own terms again. In the mid-1970s, Dresdner again pioneered in the field of international finance by opening representative offices in London, Tokyo, and even Moscow.
In 1968 Dresdner established German-American Securities--now called ABD Securities Corporation--in New York. Today this investment banking subsidiary is an extremely important part of Dresdner's worldwide securities expertise. As a measure of the subsidiary's, and Dresdner's, American prominence, ABD's chief, Theodor Schmidt-Scheuber, was the first foreigner to be made head of an American stock exchange, in Boston.
Dresdner earned recognition in 1974 for its adroit handling of the sale of the Quandt family's 10 & percnt; share of Daimler-Benz to Kuwait, the largest deal of the kind at the time.
In 1977 Dresdner and the whole German business community were shocked when Jürgen Ponto, then chief executive of Dresdner, was killed by left-wing terrorists during a kidnapping attempt. The assasination cut short the life of the man who had headed Dresdner since 1969 and helped make it the international business power it is today.
Hans Friderichs, a former economics minister, was Ponto's eventual replacement. In 1978, Dresdner had officially become one of the ten largest banks in the world. But Dresdner didn't prosper under Friderichs for long; his six years in charge were marked by mounting losses and turmoil among executives. Friderichs's tenure ended sadly in February 1985, when he resigned in the wake of charges that he had accepted a bribe for a favorable tax ruling given to the Flick Industrial Group while he was economics minister.
Friderichs's replacement was Wolfgang Röller, a very able member of Dresdner's board whose specialty was the securities business. It was Röller who had established ABD Securities in 1968, and he who had arranged the Kuwaiti sale of Daimler-Benz. Röller had spent most of his career at Dresdner, becoming one of the youngest executives in the German banking industry when he joined Dresdner's management board in 1971 at age 38. Röller's background in securities made him an especially appropriate choice as the banking industry in general, and Germany's in particular, entered an era of decreasing regulation and intensified international competition.
Under Röller, Dresdner began to prosper again. In his first year in charge, earnings rose 18 & percnt; and assets 8 & percnt;, to DM189 billion. That year, Dresdner became the first German company to have its shares listed on the Tokyo stock exchange.
In the late 1980s, banks throughout Europe and the world began to gear up for the unification of the European market in 1992. Dresdner set out to build its presence by concentrating on its expertise in securities trading and fund management, anchored by a strong domestic presence and its American subsidiary, ABD Securities. In May, 1988 Dresdner bought a majority interest in Thornton & Company, a leading British asset-management company, to strenthen its presence in that country and also in Asia, where Thornton has a strong position. It also bolstered its U.S. position by purchasing several seats on the New York Stock Exchange.
Dresdner responded quickly to the tumult in Eastern Europe in 1989, rushing to open an office in Warsaw as well as in several East German cities, including Dresden, the city where the bank was founded in 1872.
As Dresdner faces the coming of the unified European market and the tremendous changes reshaping Eastern Europe, it seeks to capitalize on and strengthen both its global network and its domestic presence, especially in investment banking services such as asset management and securities trading. As one of the largest banks in Germany for more than a century, Dresdner faces the challenges ahead with the advantage of a long history of overcoming obstacles and adversity.
Principal Subsidiaries: Bankhaus Reuschel & Co.; Deutsch-Südamerikanische Bank AG; Diskont und Kredit AG; Dresdner Bank Berlin AG; Oldenburgische Landesbank AG; KG Aligemeine Leasing GmbH & Co.; Deutsche Hypothekenbank Frankfurt-Bremen AG; Hypothekenbank in Hamburg AG; Norddeutsche Hypotheken- und Wechselbank AG; Pfaizische Hypothekenbank AG; DEGI Deutsche Gesellschaft fzür Immobilienfonds mbH; Deutscher Investment-Trust; dresdnerbank investment management; Betelligungsgesellschaft für die deutsche Wirtschaft mbH; Unternehmensbetelligungsgesellschaft für die deutsche Wirtschaft AG; ABD Securities Corporation (U.S.); Banque pou l'Europe SA (Luxembourg); Europa Bank AG (Luxembourg); Banque Veuve Morin-Pon's (France); BNP-AK-DRESDNER BANK A.S. (Turkey); Dresdner-ABD Securities Limited (Hong Kong); Dresdner Bank Canada; Dresdner Bank Luxembourg S.A.; Dresdner Bank (Switzerland) Ltd.; Dresdner Fortfaitierungs Aktiengesellschaft (Switzerland); Dresdner (South East Asia) Limited (Singapore); Thornton & Co. Limited (U.K.); United Overseas Bank (Switzerland).
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