{"id":"5ea856946cee0700060f5fba","slug":"dark-towers-en","title":"Dark Towers","audio_url":"https://hls.blinkist.io/bibs/5ea856946cee0700060f5fba/5ea856d86cee0700066de4ae-T1588091601.m4a?Expires=1656729582&Signature=HQv49ODUy7iVwALPPgnOftuKdxvxlK1Of8sNhFEt05QhdVDemIavlGbe0ipbocE6DFRp~g8~0aEpGrjU91w6zvwrn2gcIeauT5F3gObkhRrvShKN4IGKn8KWvaIkeELrhp6Lo5VFFMtDN~l5jApPmIxOaRSe38vfvaVMS8FuCjfxebtiNtuR3CUmCRxC7bHM9Ak63wMdjgb4K4SiFHM-s463vN6SspFpTVN4jeLKCd5EmqZjB5zoujaf3qenCLYxHHJuQ7i61epOOF1GRE5pSriDQ3nJ9YBTNli4xGqn3wzC47xeR1VXHww7mm1NREPqgmlyNpT-wS3HQlJIYJV0fQ__&Key-Pair-Id=APKAJXJM6BB7FFZXUB4A","chapters":[{"id":"5ea856d86cee0700066de4ae","title":"From its founding, Deutsche Bank set a precedent for dealing with unscrupulous characters and nefarious institutions.","text":"

In September 1883, a train full of dignitaries pulled into Gold Creek, Montana. Waiting to meet them was Henry Villard, a German immigrant turned railroad tycoon. Villard’s company had built part of the transcontinental railroad, and he was in Montana to nail in the ceremonial last spike. Also present to witness the proceedings was the richly dressed German banker Georg von Siemens. His 13-year-old bank, Deutsche, had bankrolled the railroad.

Despite the pomp, Villard’s business was in shambles. Weeks after the ceremony, it defaulted on its loans, and its investors – including Deutsche – lost their money. But Villard, who had used the borrowed money to build a lavish mansion in Manhattan, refused to accept blame for the debacle.

The key message here is: From its founding, Deutsche Bank set a precedent for dealing with unscrupulous characters and nefarious institutions.

Having skulked back to Germany, Villard made friendly overtures to Siemens. Despite the money he’d lost on Villard’s reckless railroad ambitions, Siemens received him. The two became close friends.

Three years later, in 1886, Siemens sent Villard back to the United States to sniff out potential investments on behalf of Deutsche Bank. For a time, things went well, and Deutsche became a major funder of the US railroad network. But Villard’s nature couldn’t be suppressed; predictably, his new company went bankrupt. Even more predictably, Villard ducked the blame.

Despite Villard’s failings, Deutsche continued to grow, buoyed by European industrialization. By 1913, it was the sixth-largest bank in the world.

When Hitler came to power in 1933, Deutsche became the chief financier for the Nazi regime. The bank was in charge of converting gold stolen from Holocaust victims – including fillings extracted from people’s teeth – into cash. Deutsche also financed the construction of Auschwitz, the notorious concentration camp, as well as the factory that produced Zyklon B, the poison gas used in the camps’ death chambers.

After the war, Deutsche Bank’s ruined Berlin headquarters fell under British command. Because Germany still owed Britain reparations from World War I, it was in Britain’s interest for a strong German bank to resuscitate the economy. Although the bank’s wartime director, Hermann Abs, had been convicted of war crimes, Britain let him off with a light sentence. By 1956, he was running the show at Deutsche once more.

In 1970, the year of its centenary, Deutsche was German through and through. It had built two massive towers that dominated Frankfurt’s skyline, nicknamed “Debit” and “Credit” by locals, and invested in all the top German companies.

In the coming years, this was to change dramatically.

"},{"id":"5ea856ee6cee0700066de4af","title":"As Deutsche pivoted toward the modern financial system, its company culture changed as well. ","text":"

In 1987, Alfred Herrhausen took the reins at Deutsche. Inspired by financial innovations in the United Kingdom and the United States – and the booming economies that resulted – Herrhausen bought the British investment bank Morgan Grenfell in 1989 for $1.5 billion. It was the largest-ever acquisition of an investment bank.

Subsequent Deutsche leaders also evangelized the Anglo-American approach to banking. By the time the American bank Goldman Sachs won a coveted contract to privatize Deutsche Telekom, the writing was on the wall. If Wall Street was coming to Germany, then Germany would have to go to Wall Street.

To facilitate the transition, Deutsche brought on a team of brash American traders who specialized in a risky new financial innovation: derivatives.

The key message here is: As Deutsche pivoted toward the modern financial system, its company culture changed as well.

Edson Mitchell had started his career doing the accounts for an egg farm in Maine. Now, he was the toast of Wall Street – a work-hard, play-hard type who was popular with his employees and respected by his bosses. His best friend was Bill Broeksmit. The two had cut their teeth together at Merrill Lynch in Chicago and were experts in the emerging market of derivatives, products whose value is derived from another product.

At the time, derivatives were being hailed as a financial innovation that would help both institutions and customers – just like ATMs or 30-year mortgages. But Wall Street banks were beginning to use derivatives to engage in financial speculation, which essentially amounted to betting. It became hugely profitable, and Mitchell and Broeksmit were suddenly very popular on Wall Street.

Mitchell positioned himself to lead Deutsche’s push to play in the global financial markets from its London office. With a war chest of $2 billion, he poached his old team from Merrill Lynch and then some, doubling the workforce in 18 months. Finally, he enticed Broeksmit across the pond with a high-seven-figure annual salary.

The Americans changed the company culture from one of considered, conservative, consensus-based decision-making to the risk-taking, brash machismo of the archetypal American cowboy. These financial gunslingers had to be trained to correctly pronounce “Deutsche.” Apparently they’d been telling people they worked at “Douche Bank.”

The Americans also instilled Deutsche with contemporary Wall Street culture. The new goal? To accumulate as much individual profit as possible. For bankers to want to make money is, of course, expected. It’s even fine within an institution, as long as there is a unifying force ensuring that everyone is pulling in the same direction.

Without that force, though, there’s the potential for catastrophe.

"},{"id":"5ea8570e6cee0700066de4b0","title":"As power continued migrating toward Deutsche’s investments arm, the bank started playing even dirtier.","text":"

Despite his popularity at Deutsche – not to mention his high salary – Broeksmit retired in 2000. He wanted, he said, to spend more time with his family. But in truth, the changing culture at Deutsche had begun to wear on him. One of the major catalysts for the change was Deutsche’s acquisition of Bankers Trust.

By the 1990s, Bankers Trust, the heritage American bank, was in dire straits. For one thing, it had emerged that its derivatives deals were flagrantly scamming customers. For another, it was in the habit of striking risky deals – including making an unsecured loan of $100 million to Donald Trump, which he never paid back.

Mitchell, meanwhile, thought that in order to build a Wall Street-caliber business, Deutsche would have to buy a Wall Street investment. He proposed purchasing Bankers Trust.

The key message here is: As power continued migrating toward Deutsche’s investments arm, the bank started playing even dirtier.

Some Deutsche insiders were worried about buying a third-rate bank riddled with institutional rot, but Mitchell ignored them. In 1998, Deutsche bought Bankers Trust for $10 billion. Prior to the merger, the investment banking arm of Deutsche had brought in 29 percent of Deutsche’s profits. A year later, the share was 85 percent.

Alongside the Bankers Trust deal, another kind of rot was spreading in Deutsche’s ranks. Deutsche’s traders were increasingly willing to finance projects other institutional lenders wouldn’t touch, including the real estate schemes of Donald Trump.

By the mid-1990s, Trump had already defaulted on loans worth millions of dollars with other banks. This made him radioactive with the finance industry – until he met Deutsche trader Mike Offit. Offit was aware of Trump’s reputation, so he was relieved and impressed when Trump exhibited the relatively standard behavior of memorizing the details of the proposed deal. Offit gave him a loan of $125 million, then another $300 million with the blessing of Deutsche HQ.

After Mitchell sacked Offit, Trump stayed a Deutsche client, serviced by Offit protégé Justin Kennedy, son of Supreme Court Justice Anthony Kennedy.

A few years later, in 2000, Deutsche’s high-flying investment bank faced an existential setback: Edson Mitchell, aged 47, had been killed in a plane crash.

There was a rush to fill the power vacuum. Anshu Jain, a Mitchell acolyte who overcompensated for his crippling insecurity by yelling, was selected to be his de facto replacement.

Under Jain, Deutsche’s deeds were dirtier than ever. When the US Securities and Exchange Commission began investigating Deutsche in 2001, the bank poached away the lead investigator with the promise of riches and glory. The case was dropped.

"},{"id":"5ea857266cee0700066de4b1","title":"Under Joe Ackermann’s leadership, Deutsche assumed a profit-at-any-price mentality, while letting its infrastructure deteriorate.","text":"

The man who appointed Anshu Jain was Joe Ackermann, a Swiss Anglophile with an icy stare and a penchant for numbers. Ackermann had been close with Edson Mitchell and, in 2002, he was named the first-ever CEO of Deutsche Bank. Obviously, a numbers-obsessed leader is good for a bank. But Ackermann tended to focus on profit – and profit only.

The key message here is: Under Joe Ackermann’s leadership, Deutsche assumed a profit-at-any-price mentality, while letting its infrastructure deteriorate.

When he first came to power, Ackermann’s priority was to reverse a recent downslide of Deutsche’s stock. So he sold its ownership stake in various German companies and distributed the proceeds to shareholders. Some Deutsche bystanders were shocked; in the case of a crisis, the money would be safer in the bank than in the pockets of shareholders. Ackermann did it anyway.

Ackermann homed in on a single metric: return on equity. Roughly, return on equity is a percentage measure of how much profit an investment in Deutsche would return over a given year. Under Ackermann, the whole company was expected to adhere to the investment banking ethos: money-making was all that mattered, and any decision that could reduce profits should be postponed. Deutsche’s bonus compensation system was adjusted to reflect the new reality. Some traders walked away with $30 million checks at the end of the year.

The obsession with profit led Deutsche down some dark roads. Under Ackermann, Deutsche began funneling money to regimes under economic sanctions, including Syria, Iran, North Korea, and Sudan. Employees were trained in countersurveillance to avoid detection by international law enforcement.

Ackermann’s personal fascination with Russia also created some future problems for the bank. In 2006, Deutsche acquired a Russian stock trading business whose clients included law-skirting oligarchs. Around the same time, Deutsche extended a $1 billion credit line to Russia’s VTB Bank, a government-controlled lender with ties to Russian intelligence.

All the while, Deutsche’s computer systems were becoming increasingly fragmented. This meant that the bank had no way to measure or understand what it was actually doing. Worse, there was no way to fix it. One executive said that “it would be like changing an engine mid-flight.”

Even if unifying the computer systems had been an easy prospect, it would have been expensive – and that made it unacceptable to Ackermann.

"},{"id":"5ea857396cee0700066de4b2","title":"Trump had burned other banks in the past, but Deutsche was so eager for growth that it worked with him anyway.","text":"

Deutsche’s work-with-anyone approach didn’t just include failed states and dictators. The bank continued to do business with brash New York real estate celebrity Donald Trump.

Justin Kennedy was Trump’s point person at Deutsche. He championed Trump’s petitions for increasingly large real estate loans through the bank and accompanied Trump to Manhattan nightclubs and soirées. The largest of these loans came in 2005, when Deutsche lent Trump $640 million to build a luxury tower in Chicago.

The key message here is: Trump had burned other banks in the past, but Deutsche was so eager for growth that it worked with him anyway.

Trump was clearly a bad investment. He had a history of defaults on Wall Street and even taunted investors that he might stop paying back his loans. But what he lacked in business sense, he made up for in showmanship.

He hired a group of Deutsche bankers to fundraise for his troubled Trump Hotel & Casinos Resorts, promising them a weekend at his Florida golf club, Mar-a-Lago, if they succeeded. They sold $485 million in junk bonds, and after several reminders Trump sent his plane to bring 15 salesmen to Palm Beach.

The next year, Trump filed for bankruptcy, and the investors who had bought the junk bonds suffered painful losses. “I don’t think it’s a failure,” Trump said. “It’s a success.”

In the meantime, Trump worked with other sectors of the bank. He greased the wheels on the $640 million loan with flights on his private jet, gifts, and praise. The deal went through, even though Deutsche accountants found that Trump’s net worth was about a quarter of what he had claimed.

His association with Deutsche clearly benefited Trump, especially given the rock-bottom interest rates the bank was charging him. But Trump was good for Deutsche, too. Back in the early aughts, it was still a German bank fighting for name recognition in the United States. Trump was a TV star, and the spotlight shone on Deutsche by association.

The relationship soon soured, though. At the peak of the financial crisis in 2008, Trump owed Deutsche $334 million, which he had no intention of paying back. His lawyers invoked force majeure, an obscure contract clause that normally pertains to a natural disaster. They claimed that the economic crisis was, like a hurricane or an earthquake, an act of God, and thus the contract was null.

But Trump didn’t stop there. A few days later, Trump sued Deutsche, accusing them of predatory lending practices. He asked for damages of $3 billion.

That did it. Deutsche washed its hands of Trump – for the time being, anyway.

"},{"id":"5ea8574d6cee0700066de4b3","title":"Deutsche Bank weathered the Great Recession due to luck and subterfuge. ","text":"

There wasn’t much love lost between Anshu Jain and Joe Ackermann. Ackermann didn’t trust Jain and regularly badmouthed him to board members behind his back. For his part, Jain thought he was putting in all the hard work while Ackermann swanned around at state dinners.

But the two executives had one important thing in common: they knew how to make money. The trouble was, that was all they knew how to do. Jain wasn’t a good leader or a responsible executive. He screamed at subordinates and didn’t take disagreement well. But, for Jain and his team, the ends justified the means. It didn’t matter how the money was coming in, as long as it was coming.

This mentality would stand the bank in good stead as it faced its most serious crisis yet: the collapse of the US housing market, which triggered the so-called Great Recession.

The key message here is: Deutsche Bank weathered the Great Recession due to luck and subterfuge.

Leading up to the recession, it was almost impossible not to make money. Interest rates were close to zero, so banks could borrow large amounts of money for practically nothing. All they had to do then was find assets that produced greater returns than the interest they had to pay. Eventually, the ratio of Deutsche’s assets that were borrowed to its capital reached 50 to 1. By comparison, most banks hovered around 20 to 1.

This ratio remained tenable only so long as the economy continued to grow. And grow it did, along with Deutsche. In 2007 Deutsche became the largest bank in the world, with $2 trillion on its balance sheet – about the same size as the entire German economy. Ackermann and Jain convinced themselves they were good, not lucky.

But in August 2007, at an annual conference in Barcelona, Jain was nervous. He and his lieutenants were rattled by signs of a gathering economic storm. In a move that probably saved the bank, he instructed his teams to sell off their riskiest positions in the US housing market.

They were protected, but the storm still hit. Desperate for help, Jain called Bill Broeksmit, begging him to help Deutsche batten down the hatches. Broeksmit, bored with retirement, agreed.

All told, Deutsche was the only bank that managed to profit during the time of the recession – or appear to, at least. In addition to Jain’s early stroke of luck, Deutsche traders massaged the books to conceal that they were still sitting on piles of toxic derivatives, hiding billions in losses.

But those losses wouldn’t stay hidden forever.

"},{"id":"5ea857616cee0700066de4b4","title":"Tasked with solving Deutsche’s problems, Bill Broeksmit felt increasingly alienated from the business he’d helped to establish. ","text":"

Slowly but surely, regulators wised up to what was going on behind Deutsche’s closed doors. In the first eight months of 2013, Deutsche fielded 5,777 requests for information – about one every hour.

A British investigator brought a tax fraud case against Deutsche. Instead of putting a stop to the illegal behavior, Deutsche moved its racket to Germany. By the time the Germans forced Deutsche to pull the plug, they had swindled the two governments out of nearly $250 million.

What’s more, regulators were sick of being seen as wrist-slappers who imposed relatively small fines on banks with billions of dollars to play with. They got tough and began handing down fines in the billions.

In many cases, Bill Broeksmit tried to stop practices that swung between brazenly and mildly criminal. Almost always, he was either ignored or openly mocked.

The key message here is: Tasked with solving Deutsche’s problems, Bill Broeksmit felt increasingly alienated from the business he’d helped to establish.

Broeksmit had always been the backstop for Mitchell’s wild trading practices. But those days were long gone. In 2009, Broeksmit challenged Troy Dixon, a brash young New York trader, over his risky trades; as a result, Broeksmit was made a figure of fun by Dixon’s team. Ultimately, Dixon’s work cost Deutsche $541 million and raised red flags with regulators.

The next indignity came in 2012, when two of Broeksmit’s promotions were torpedoed by German regulators for political reasons. Instead, he was assigned a seat on the board of an obscure Deutsche arm in the United States that was the dumping ground for problematic deals, like the loans to Trump. Broeksmit was appalled by what he found there: a jumble of woefully ineffective technology and head-in-the-sand traders unconcerned with circling regulators. His job was to untangle this colossal mess.

Deutsche’s investment arm – the part of the business Broeksmit had built with his deceased best friend Edson Mitchell – was now the root of its troubles.

Worse, it became clear that US and British regulators were zeroing in on him, of all people, as the subject of an investigation of malfeasance. They had subpoenaed the tape of a call he’d been on, during which he’d admitted that Deutsche had been actively dodging billions in taxes. He felt cornered, forced to defend an institution in which he no longer believed.

In January 2014, Broeksmit hanged himself with his dog’s leash. He left suicide notes addressed to his family and Anshu Jain.

"},{"id":"5ea857776cee0700066de4b5","title":"Anshu Jain’s resignation was a harbinger of a new era of reckoning, and restructuring, at Deutsche Bank.","text":"

In the wake of Broeksmit’s death, Jain and other Deutsche top brass were left to make tough decisions about the future of the bank without his steady hand.

Deutsche’s troubles with regulators had spooked investors, and the stock price was at its lowest point ever. It didn’t seem like there was an end in sight. By 2015, there were over 7,000 outstanding legal actions against Deutsche all over the world. Billions in fines were looming.

When yet another fine came down, for $2.5 billion, Jain ignored the topic on a call with the board. The board members were stunned. This wasn’t a leader they could trust in trying times. Jain saw the writing on the wall and resigned in 2015.

The key message here is: Anshu Jain’s resignation was a harbinger of a new era of reckoning, and restructuring, at Deutsche Bank.

Jain’s ouster didn’t end Deutsche’s woes, but it did show that the bank was at last responding to troubles too serious to be ignored.

For one thing, Deutsche continued to hemorrhage money. The industry had cottoned onto the fact that Deutsche wasn’t worth what it claimed it was. Billions of the bank’s assets were still in derivatives, which, after the 2008 crash, were virtually worthless. Investors continued to jump ship at alarming rates, driving the stock price even lower.

Even worse, in 2015, Barack Obama’s Justice Department levied a fine of $7 billion against Deutsche for defrauding investors – the largest penalty ever imposed on a bank.

Clearly, a drastic restructuring was needed if the bank was going to survive. In 2018, the board got rid of Jain’s successor and appointed yet another new CEO. Their choice, Christian Sewing, was a baby-faced German who had been with the bank practically since high school. Decades earlier, he had warned against Deutsche straying too far from its heritage as a stoically conservative German bank. Now he recommended drastically cutting the investment arm of the bank, which Edson Mitchell had modeled after the go-go firms in London and New York. The workforce would be reduced by 20 percent.

Deutsche had finally gotten its name recognition in the United States – but for all the wrong reasons. Russian oligarchs with something to hide had long known that Deutsche’s Moscow branch was the go-to place to launder their money. In 2014, government investigators became aware of the so-called Laundromat, and, in 2017, journalists broke the story to the public.

What’s more, Deutsche’s relationship with Trump had come back to haunt it in a big way.

"},{"id":"5ea8578a6cee0700066de4b6","title":"Millions in loans from Deutsche – and an associated veneer of legitimacy – helped Trump become a US president. ","text":"

Deutsche’s legal entanglement with Donald Trump stretched into 2010, when the bank agreed to let him off the hook for a $40 million flat rate. Trump must have been pretty happy – that was about $300 million less than he owed.

But he still didn’t have the money. Jared Kushner, by then Trump’s son-in-law, introduced Trump to his personal banker, Rosemary Vrablic of Deutsche. Vrablic got her start working for an Israeli bank specializing in money laundering and had made a name for herself by bringing huge new clients to Deutsche.

Trump asked Vrablic for a $50 million loan from Deutsche’s private bank to pay back what he owed to the investment arm. Eager for a big new client, Vrablic pushed the deal through. It was an unprecedented move for a bank. But things were about to get even weirder.

The key message here is: Millions in loans from Deutsche – and an associated veneer of legitimacy – helped Trump become a US president.

In subsequent years, Deutsche helped Trump buy a golf course in Miami and lease a historic building in Washington, DC. The latter became the Trump International luxury hotel, located just a few blocks from the White House. Deutsche again gave him extremely low interest rates and began extending loans and credit lines to his family as well.

In 2015, a week after Jain’s ouster, Trump rode the golden escalator down to the lobby of Trump Tower to announce his candidacy for president. Deutsche would continue to support him throughout the acrimonious campaign.

Of course, this support came in the form of money. In the middle of the campaign, for which he was largely paying with his own money, Trump asked Rosemary Vrablic if he could take another loan from Deutsche to refinance his Miami golf course. The answer, unsurprisingly, was yes.

But Trump also benefited politically from his association with Deutsche. Faced with claims that he was a pariah in the financial world, Trump pointed to his relationship with the bank and referred journalists to Vrablic, whom he erroneously claimed was Deutsche Bank’s CEO.

When Trump was elected, horrified Deutsche executives tried to understand how the US president-elect had come to owe them $350 million. An easy answer wasn’t forthcoming. They eventually blamed the company’s antiquated technology and compartmentalized departments – as well as the corrupting influence of the Americans.

The biggest problem now was that the US president personally owed hundreds of millions of dollars to a foreign bank, over which his administration held tremendous power. If Trump were to default, the bank would have the nasty choice of either seizing the president’s personal assets or making a massive, unintended “personal donation.” Neither would put the bank in a flattering light.

"},{"id":"5ea8579f6cee0700066de4b7","title":"Val’s cache of internal Deutsche Bank documents shed light on Deutsche’s dirty deeds – and Bill’s suicide.","text":"

Many of the troubles that haunted Deutsche Bank in the years after Bill Broeksmit’s death were predictable. But one problem loomed that was almost impossible to predict, much less control: Valentin Broeksmit.

Val was Bill’s stepson, and his life had been difficult. He’d spent years in foster care before Bill adopted him. As an adult, he worked on and off as a musician, partied hard, and lived off his father’s largesse.

When Bill killed himself, Val became obsessed with finding out why. The night after Bill died, Val started poking around on Bill’s laptop and copied down a list of passwords he’d found. Looking at Bill’s personal email account for clues, Val also found that Bill had forwarded hundreds of emails from his work account.

This archive would become Val’s bread and butter for the next five years. And it’s the primary reason we now know the extent of Deutsche Bank’s depraved exploits.

The key message here is: Val’s cache of internal Deutsche Bank documents shed light on Deutsche’s dirty deeds – and Bill’s suicide.

The day after Bill died, Deutsche representatives visited the family to offer condolences. One representative showed great interest in Bill’s laptop and made copies of the hard drive. They instructed Bill’s family to say nothing to the press.

Five months after Bill died, Val contacted author David Enrich – then a reporter at the Wall Street Journal – for help sorting through the huge number of documents. Enrich zeroed in on one document in particular. In it, the US Federal Reserve accuses Deutsche of shoddy business practices. When the story came out, Deutsche’s stock fell 3 percent. Val liked this feeling of power.

Looking deeper, Val found evidence linking Bill’s death to his stressful job. These included letters from Bill’s doctors detailing his severe anxiety as a result of the investigations. He also found versions of the doctors’ notes, later released to the public, that had been redacted and rewritten by Deutsche lawyers.

It seemed that Bill had internalized many of Deutsche’s problems. As things started going wrong at a faster clip, the pressure simply became too much.

In 2019, Val offered the files to Adam Schiff, the chairman of the Intelligence Committee investigating Russia’s involvement in Trump’s election. By then, he knew the value of the documents and wasn’t going to let them go for free. Finally, Schiff had to issue a subpoena to make Val give them up.

The documents confirmed what many had long suspected about Deutsche Bank – and about Bill Broeksmit, the man who died for its sins. But Deutsche Bank didn’t kill Broeksmit. Through decades of criminality, arrogance, and recklessness, the bank killed itself.

"}]}

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