Dark day for Deutsche Bank

Things were unusually calm and quiet at Deutsche Bank in recent months, and this past week there was a spate of good news. On Thursday (28.04.2016) the bank reported a profit for the first quarter of 2016, surprising many analysts, and at the beginning of this week, several current and former senior executives were found not guilty of charges related to the bank's alleged role of the Kirch media empire a decade ago.

The week presented a welcome contrast to the negative headlines frequently associated with the bank in recent months and years. John Cryan, the new CEO at the helm of Deutsche as of last summer, had been tasked with cleaning up the corporate ship, and it seemed he had been having some success - albeit at a high price.

A number of senior executives were fired, a couple of thousand employees laid off, and billions were paid to settle lawsuits or charges against the company stemming from various forms of malfeasance. The third and fourth quarters of 2015 were awash with red ink as the bank settled several claims.

A close friendship's bitter end

But if anyone thought that calm had returned to the twin towers of the bank's Frankfurt headquarters, they were mistaken. It seems to be part of the DNA of Deutsche Bank's senior ranks to kick each other in the shins from time to time. The newest round of this was reported last weekend in a story by the "Frankfurter Allgemeine Sonntagszeitung," a Frankfurt Sunday newspaper, concerning the end of a great friendship between two of the bank's power-brokers, Paul Achleitner, the chairman of the Board, and Georg Thoma, whom Achleitner brought onto the board three years ago in order to identify and clear up the sins of the past.

However, it's said to be a bad idea to sell a used car to one's best friend, and it's perhaps also a bad idea to bring one's best friend into the same decision-making committee.

Overzealous investigator?

It seems that Thoma, one of Germany's most renowned business lawyers, approached his assigned task of clarifying the bank's past malfeasances with more thoroughness and determination that some members of the board were comfortable with. In addition to being a member of the board, Thoma was also the head of the "integrity committee," where the strands of inquiry about various scandals came together.

There were quite a few scandals to inquire about. Among the main files: Fraudulent misreporting of interest rates, foreign exchange manipulations, money laundering on a grand scale - to name just the main themes. Thoma's excessive zeal generated criticism, as some said that it was more important to close past chapters and look to the future.

Continuing turbulence

For Thoma, it appears the resistance and criticism to his attempts to shed light in dark corners of those past chapters eventually crossed a red line. He threw in the towel and quit his posts at the bank. The bank's announcement of his resignation cited one of this critics, and then thanked Mr. Thoma for his vigorous efforts and his important constructive work. It was all rather good theater, and for Deutsche Bank, another dark day, because the recent calm has been revealed as illusory.

Now, inevitably, questions will be raised: Did Thoma know too much? Was Achleitner himself coming into the focus of the bank's internal investigations? Did Thoma perhaps even want to push Achleitner off his throne? The details might turn out to be worthy of a TV soap opera set in the world of Frankfurt high finance. However, there's rather a lot at stake in the real world.

Deutsche Bank has plenty of concerns to deal with, even without the new drama. The share price is a joke, and the bank is and will remain a potential takeover target. The European Central Bank's zero-interest policy is a threat to its business model, and the on-going digitalization of the financial services industry, with its plethora of fintech innovations, may prove a threat as well.

Deutsche's next annual general meeting (AGM) is set to take place in Frankfurt in three weeks' time. It isn't likely to be a dull affair. With the latest public-relations disaster around Thoma's resignation, there's plenty of tinder available to set the house on fire. Deutsche Bank's times of turbulence appear set to continue.

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