Dark Towers — an exposé of banking gone bad
David Enrich’s salutary tale of Deutsche Bank’s overreaching ambitions
After the second world war, the victorious Allies split Deutsche Bank, which had financed the Nazis, into a network of 10 regional lenders. The German governments that followed later permitted those remnants to reunite, but David Enrich’s new history of the bank suggests — from a business perspective — that the Allied powers got it right the first time.
Dark Towers is a devastating tale of a big bank gone bad. After flourishing as the house bank of a rising West Germany, Deutsche floundered in recent decades as it tried to become a global investment bank in the American style, recruiting managers from the rough-and-tumble trading floor of Merrill Lynch and paying $10bn to buy Bankers Trust, a New York derivatives specialist known for “ripping off” clients.
Deutsche’s transformation had bet heavily on the conventional wisdom of the time: big international banks, it was said, would enjoy economies of scale and provide one-stop shopping for multinational corporations. But Enrich recounts here the disorder and dysfunction that plagued the Frankfurt-based financial supermarket.
Deutsche became the Zelig of banking scandals. Its employees cooked the books to hide losses, took part in rigging Libor interest rates, manipulated prices for currencies and commodities, violated US sanctions on doing business with Iran and Syria, helped Russians launder money, accepted sex offender Jeffrey Epstein as a customer and enabled the Renaissance Technologies hedge fund to avoid billions of dollars in taxes. It even switched off the smoke detectors in executive offices so that bank bigwigs could satisfy their tobacco cravings.
Size wound up translating into inefficiency. Computers in New York could not communicate with those in London. Traders recruited from other firms were allowed to use their own financial models, giving them the leeway to pitch the same products at different prices — all the while without adequate capital to cushion against a fall. One part of Deutsche made a loan to Donald Trump — depicted by Enrich as the quintessential Deutsche client because no other big bank would have him — so the future US president could pay off his debts to another part of Deutsche.
Ten little Deutsches would never have had the same opportunities for mayhem; nor would traders operating without the imprimatur of a bank — as hedge funds, for instance — have enjoyed the same licence to misbehave.
To Enrich’s credit, his review of decades of complicated Deutsche debacles is easy to read — suitable for a spot under the tree next Christmas. As was the case in his book on the Libor scandal, The Spider Network, he draws the reader in by focusing on the people in his story, displaying an Arthur Miller-like eye for the worn-down Willy Lomans of today’s Wall Street.
His central character is Bill Broeksmit, a Deutsche banker who killed himself in 2014 after saying in a suicide note that he looked back on his career “with shame”. An ex-Merrill risk manager and derivatives specialist who could be found at the “low end” of banking’s avarice spectrum, he is portrayed as Deutsche’s tortured conscience — “forced into defending an institution he no longer believed in” and “concluding that banks of Deutsche’s size were simply too big to manage”.
Enrich knows this because of Broeksmit’s stepson Val, a musician with a history of drug addiction. Seeking to understand his stepfather’s death, Val explores the elder Broeksmit’s computer, unearthing troubling Deutsche documents that he shares with reporters, including Enrich.
The drawback of Enrich’s up-close-and-personal approach is that it puts great weight on psychological factors to explain Deutsche’s woes. Broeksmit is the “superego of the investment bank”. Edson Mitchell, the ex-Merrill executive who steered Deutsche’s turn to investment banking before dying in a 2000 plane crash, led traders whose “collective id [had been] unleashed”. Josef Ackermann, the Swiss chief executive who pushed Deutsche to become more profitable, is described as a “desperately insecure . . . narcissist”. His successor, Anshu Jain, who quit in 2015, is said to suffer from “chronic insecurity”.
The book would have benefited from a more thorough discussion of the business challenges that Deutsche faced as it switched gear. Its old business was in decline; as Enrich notes, traditional banking was becoming “commoditised” and Deutsche’s “run-of-the-mill lending businesses were not very lucrative”. Against this backdrop, Enrich says Deutsche was “seduced by the siren song of Wall Street riches”. But what other options did it have?
Deutsche was hardly the only European bank to try its luck on Wall Street and fail. Perhaps the world had no more need of an international investment bank run out of Germany than it did a British search engine or a US textile mill. Or maybe Deutsche and its European brethren were just late to the party.
In any case, Enrich’s book ends with Deutsche Bank moving in a new direction. Under a plan revealed in July, it will scale back trading operations, unload tens of billions of assets and cut 18,000 jobs. It has decided — on its own — to shrink.
Dark Towers: Deutsche Bank, Donald Trump, and an Epic Trail of Destruction by David Enrich, Custom House, $29.99/ HarperCollins, £20, 416 pages