From a distance, Deutsche Bank's capitulation is bizarre. Lehman Brothers failed during a full-blown financial crisis, with 26,000 employees losing their jobs.
This weekend, Deutsche Bank's sweeping restructuring of its investment bank will bring a similar level of mass redundancies — but after a decade-long bull market.
The market, political and regulatory pressure has built for years. Deutsche's management is finally giving up. The Frankfurt bosses will rip out the heart of the US investment bank, quarantining unwanted assets in a "bad bank" and attempting to sell off whole businesses.
What is sad for 20,000 bankers and traders, compliance and support staff is good news for investors who have seen their shares fall 80 per cent in 10 years. It should be a relief, too, for the German taxpayer, who has remained the ultimate backstop for this hulking "too big to fail" institution.
Deutsche emerged from the 2008 crisis proud of having avoided a government bailout.
But as whistleblowers claimed — and the Securities and Exchange Commission later confirmed — its stated balance sheet was distorted by false accounting.
After the crisis, legacy trades continued to clog the books and, in a world of higher capital requirements, Deutsche could no longer take the giant leveraged bets that used to flatter its income statement.
Was there another path? Different leaders might have helped. Some cite as a potential lost saviour Edson Mitchell, former head of securities sales and trading, who died in a plane crash in 2000. But a quote attributed to him also shows an enduring Deutsche problem: 'If you don't have US$100 million by the time you're 40, you're a failure.'"
The big bonuses were made in the pre-crisis years but even in today's relative austerity, Deutsche had 643 employees earning more than €1m last year. Whatever its meagre return on equity, Deutsche usually made money for someone — just for the top staff rather than shareholders.
Some former employees suggest an earlier reckoning might have worked wonders. If Deutsche had acknowledged its dire straits and accepted massive government support, it might have wound up like Citigroup, which took US$45 billion of US government money in the crisis but ended up with a viable business.
Had it followed Goldman Sachs and Bank of America in accepting a restorative capital injection from Warren Buffett's Berkshire Hathaway, things might have been different. Instead, Deutsche used Berkshire for a series of secret derivatives trades that deferred real reform.
"The one word that would describe what took place with the US investment banks versus the European banks would be 'capital'," says Mike Mayo, an analyst at Wells Fargo, who once worked for Deutsche. "The larger US banks raised more capital faster and have more actively reallocated that capital than others."
Today, Goldman Sachs, Morgan Stanley, Bank of America, Citigroup and JPMorgan Chase outperform Deutsche, Credit Suisse, UBS and Barclays. They are benefiting from their greater heft in trading. As Mayo says, "Goliath is winning."
When Deutsche retreats, "Wall Street" will be a broken synecdoche. Deutsche, at number 60, was the last investment bank in that part of Lower Manhattan.
What will remain are recriminations over how Europe's investment banking champion failed to last the distance.
Written by: Tom Braithwaite
© Financial Times