Deutsche Bank A.G.

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Deutsche Bank A.G.

Taunusanlage 12
P.O. Box 1000601
D-6000 Frankfurt am Main
Federal Republic of Germany
(0211) 71500

Public Company
Incorporated: 1870
Employees: 54,769
Assets: DM305.3 billion (US$172.15 billion)
Stock Index: Berlin Bremen Düsseldorf Frankfurt
Hamburg Hanover Munich Stuttgart Vienna Antwerp
Brussels Paris Luxembourg Amsterdam Basel Geneva
Zurich London Tokyo NASDAQ

Deutsche Bank has weathered two world wars and three depressions to become one of the world’s leading financial institutions. Many German citizens regard the bank as the champion of individual and small business interests—and one of the safest places in Europe to store money.

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 1873-1875 it appeared that the entire economic system was on the verge of collapse; small shareholders as well as wealthy businessmen were ruined, and in Berlin alone nearly 50 banks filed for bankruptcy.

But Deutsche Bank, due to 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 also 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 Crédit 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 Créditbank, 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. However, with the war lost, the German empire gone, and the transition from monarchy to democracy threatened by revolution, Allied demands for reparations totalling 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% 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 “re-employment” 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 “re-employment” had become “re-armament.” 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 through 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 DM8.4 billion. 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 DM2,000 and medium-sized loans up to DM6,000 for specific purchases, as well as an overdraft facility of up to DM1,000 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 Crédit in West Germany.

Under the direction of Abs, Deutsche Bank began to re-establish 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 Générale 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 Crédit 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 the possible takeover of key German industries by Middle Eastern concerns flush with petrodollars supplanted the big banks as a source of public worry. At the request of Chancellor Helmut Schmidt, Deutsche Bank purchased a 29% interest in Daimler-Benz from industrialist Friederich Flick to insure 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% 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 1980-1981 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% 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; in 1986 it acquired Banca d’America e d’Italia from the Bank of America; and in 1988 it acquired a 2.5% 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 workforce. In 1988 Deutsche Bank entered the treasury securities market at a time when many foreign firms were leaving.

At home, Deutsche Bank took a large and controversial step toward becoming a one-stop financial service center in 1989 when it created it 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 is 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 on November 30, 1989, Hilmar Kopper became sole spokesman. Kopper is sure to continue the strategy that Deutsche Bank has pursued both at home and abroad during the late 1980s—an expansionist strategy designed to solidify its position at the top of West Germany’s banking industry and take it to the top of the world as well.

Principal Subsidiaries

Banca d’America e d’Italia S.p.A.; Deutsche Bank Luxembourg S.A.; Europaische Hypothekenbank der Deutschen Bank (Luxembourg); H. Albert de Bary & Co. N.V. (the Netherlands); MDM Sociedade de Investimento S.A. (Portugal); Banco Comercial Transatlántico (Spain); Deutsche Bank (Suisse) S.A.; Deutsche Bank Capital Markets Ltd. (U.K.); Deutsche Bank (Canada); McLean McCarthy Ltd. (Canada); Deutsche Bank Capital Corporation (U.S.); Deutsche Crédit Corporation (U.S.); DB Capital Markets (Asia) Ltd.; PT Euras Buana Leasing Indonesia; DB Capital Markets (Asia) Ltd. (Japan); Bain & Company Ltd. (Australia); Deutsche Bank Australia Ltd.