Kaiser Wilhelm II had opened the Festhalle event center in Frankfurt in 1909, and its pink colonnaded facade, cavernous main hall, and 120-foot-high cupola ceiling made it an instant landmark in the city’s cultural scene. Over the decades the Festhalle was the venue for countless concerts, auto expos, sporting events, even magic shows. In the course of one week in spring 2012, two big events were scheduled to take place. One was a concert by Jay-Z and Kanye West. The other, on May 31, was Deutsche Bank’s annual shareholder meeting. Normally the latter wouldn’t have been a big deal, but this was an important occasion: It marked Joe Ackermann’s final moment as CEO.
It was a sweltering day in Frankfurt, and municipal vehicles roamed the streets, spraying water to cool the asphalt. More than 7,000 shareholders showed up at the Festhalle, the most ever at a Deutsche annual meeting. Buffet tables were piled with sausages, potato salad, and more than 11,000 sandwiches. A booth offered souvenir photos in case any shareholders wanted to take home a memory of their day with Deutsche. The bank had printed stacks of a glossy magazine to commemorate Ackermann’s decade as CEO. It featured photos of him with world leaders—across a conference table from Vladimir Putin, dancing with Christine Lagarde, smiling at Angela Merkel, sitting with a stone-faced Mikhail Gorbachev—and quotes from academics, journalists, and international dignitaries. “His skillful leadership of Deutsche Bank through difficult economic times has been an inspiration for the world’s financial community,” Henry Kissinger cooed. “When Joe retires in May, he will leave with the knowledge that Deutsche Bank is well equipped to face the future with confidence.”
These elites were out of touch with the seething anger that much of the public continued to feel toward banks and their leaders. Especially in Germany, Deutsche’s increasingly severe problems were well known. Outside the Festhalle, suit-wearing protesters rapped about “fat pig bankers.” Someone dumped sewage near the hall’s entrance, hoping bank executives and shareholders would have to traipse through it on their way in.
Their displeasure was warranted. The reckless mismanagement of Deutsche was bad for its shareholders, but it was dangerous for the world. And this was to say nothing of Deutsche’s campaign to water down regulations and stiff-arm prosecutors, tactics that undermined the ability of financial watchdogs to police the banking system. If the problems at a bank of Deutsche’s size escalated, the company wouldn’t just collapse—it would drag down other big banks along with it. Only a few years removed from the global financial crisis, nobody needed to be reminded how such a chain of events would play out. Shock waves from the bank’s implosion would ricochet around the world, causing great harm to national economies and personal pocketbooks.
When Ackermann took the Festhalle stage, he was greeted with scattered boos and shouted insults. Shareholders were unhappy about their decimated investments—down more than 75 percent from their peak five years earlier. (And of course they didn’t know their bank was sitting on billions of dollars of hidden losses on derivatives, as Ben-Artzi and his colleagues had told the SEC.) Ackermann’s face was projected on a giant video screen at the front of the Festhalle, along with the bank’s official slogan: Leistung aus Leidenschaft (“Passion to Perform”). Ackermann—after a decade running the bank, his hair was gray, the rings under his eyes were dark—was unapologetic. “I have done my duty and served the company with all my strength,” he intoned.
Ackermann had spent a year campaigning to implant Axel Weber, the head of Germany’s central bank and one of Deutsche’s main regulators, as his successor as CEO. (Deutsche by now was expert in the benefits of the revolving door.) Weber seemed game, but after a pitched battle, the board rejected Ackermann’s advice and selected Anshu Jain and Jürgen Fitschen, a longtime German banker, as the incoming leaders. (Anshu had cemented the outcome by making clear he would leave if he didn’t get the job.) The pairing with Fitschen—and the fact that there would be two CEOs, not one—represented a compromise on the board between factions aligned with the investment-banking division and the German traditionalists.
Ackermann didn’t hide the fact that he was less than thrilled with his successors. He worried that Jain lacked the charisma and international reputation to be able to play the diplomat role that Ackermann had so enjoyed. And he blamed Anshu for most of the bank’s current problems, including the investment bank’s unmistakable pattern of envelope-pushing misbehavior. In his Festhalle speech, he hardly mentioned his two successors, only expressing his hope that they “can build on what we have achieved together.”
As Ackermann droned on, Jain pulled an iPad out of his knapsack and appeared to tune out. Nothing Ackermann said at this point could obstruct his ascent or change the fact that he would be the first non-European, the first nonwhite guy, to run this 142-year-old institution. It was the culmination of decades of ambition. He had helped build something from scratch, and now he was fulfilling Edson’s destiny. The crown was his, or at least half of it was. And the way Anshu saw it, Jürgen would be the bank’s public face in Germany, while he, Anshu, would be the one who actually controlled the daily operations. To celebrate, he bought his father a silver BMW X5.
Jain had every reason to feel proud of his ascent. He had traveled a long way from the rough young trader who was too geeky for a job at Goldman. He now possessed the polished, above-the-fray sheen of an accomplished politician. He spoke with confidence. His Hermès ties were always cinched in proud, bulbous knots. He moved into a luxurious apartment in an affluent Frankfurt neighborhood, a gold nameplate engraved with the letter J the only hint of its occupant. He was now more than an individual; he was the face of an institution.
This metamorphosis had not occurred organically. He’d studied a book on German corporate governance. He had embarked on a campaign-style listening tour all over Germany. The bank’s top executives each had been paired with a leadership coach who served as a personal counselor, and Jain’s coach worked on teaching him the subtle art of carrying himself like a chief executive. (Some executives suspected that the coaches were acting as spies, reporting their secrets back to Anshu.)
But no amount of coaching could change the facts that Anshu didn’t speak German (he’d taken lessons, without much effect) and that his skin was brown. Before he became CEO, Anshu consulted with a senior German politician. “I want you to do one thing, Mr. Jain,” the politician said. “Learn German.” Anshu laughed it off, pointing out that everyone he knew in Frankfurt and Berlin spoke impeccable English. “No decision that gets made gets made in English,” the pol responded.
Even if Anshu had picked up the language, the German establishment would still have looked down on him. The local media insisted on pointing out, in just about every story, that he was Indian. Sometimes the flagrant labeling was racist, in line with The Economist’s “Indian ‘bond junkie’ ” sobriquet. Anshu turned the other cheek, but his colleagues recognized that these prejudices would make it harder for him to effectively manage the bank. Fitschen apologetically explained to one colleague that Germans didn’t look fondly upon outsiders in the banking sector. That had been true back before the rise of the Nazis, when Jews dominated—and then were erased from—the country’s banking scene, and it was true now, even if nobody wanted to admit it.
Nor was Jain fully prepared for the grueling daily task of managing a vast enterprise, of anticipating economic and political shifts before they took place, of being able to make tough decisions as the co-CEO of an entire company, not just the leader of one division. The most acute problem was that Deutsche’s finances were in terrible shape. It was completely dependent on borrowed money, a big warning sign to investors and regulators who had watched during the crisis as seemingly secure funding went poof in a heartbeat. The clearest reflection of this was Deutsche’s capital ratio—a measure of how much of a company’s balance sheet is supported by equity instead of much-riskier borrowed money—which at barely 6 percent was roughly half the industry average at the time. The bank had hundreds of billions of dollars in high-risk, hard-to-sell assets that were generating big losses with no end in sight. To make matters worse, the dynamics of the entire banking industry at the moment Jain and Fitschen took over were being turned on their heads. Regulators in the United States and elsewhere, internalizing the lessons of the financial crisis, were suddenly making it much less profitable for banks to do business using borrowed funds and to gamble with their own (or depositors’) money. This posed a grave threat to an institution like Deutsche, whose fortunes hinged on gobs of borrowed cash and whose profits derived largely from proprietary trading. Indeed, the bank was already seeing its finances slide into the red. Deutsche’s business model was going to need to change radically.
Anshu, who had spent almost his entire career in sales and trading, wasn’t ready for the seismic shift. His first priority had been to install his people in positions of power across the bank. As soon as it had become clear that he would become CEO, Ackermann’s disciples, including Bänziger, had been informed that they should have their offices empty by the day of the annual meeting. Those spacious accommodations would now be occupied by executives who had been by Jain’s side since the Merrill Lynch days. It was an understandable urge, to be surrounded by loyalists, but it meant that some executives were suddenly responsible for areas far removed from their skill sets.
Henry Ritchotte was named chief operating officer, with responsibility for, among other things, the bank’s tangled web of technology systems—something in which he had no particular expertise. Michele Faissola was put in charge of the bank’s asset- and wealth-management services worldwide, a job for which he had no discernible qualifications. And for Bänziger’s chief risk officer job, Anshu selected Bill Broeksmit. Broeksmit initially worried that the job would be overwhelming, but Jain assured him that he’d be great, and Bill grudgingly agreed. It was a leap up from his current job: head of portfolio risk optimization in the investment bank. As chief risk officer, he would be responsible for the entire risk-management operation across the entire company, not just the investment bank. He would also join the bank’s fabled vorstand, now known simply as the management board.
After Broeksmit’s promotion became public, Deutsche decided it might be a good idea to run it by BaFin, which had the power under German law to veto such senior appointments. Broeksmit was dispatched to Bonn, where BaFin was located, to be interviewed by senior regulators. This was not the order in which things were supposed to happen; traditionally, banks gave BaFin a heads-up before finalizing big promotions. That way, if the regulator had qualms, they could be addressed, and if they were unresolvable, the appointment could be quietly abandoned before it became public.
Anshu figured BaFin would rubber-stamp the appointment. Neither he nor Bill realized that behind the scenes, Hugo Bänziger, furious about being passed over for the CEO job and insulted by the brusqueness with which he’d been shown the door as the new team took over, was out for blood. He had spent months whispering in the ears of top BaFin officials, warning them that Jain was out of his depth, that he was surrounding himself with inexperienced cronies, that Broeksmit didn’t have the skills to manage a large, complex, global risk-management operation. The surprising thing was that Bill and Hugo had been friends. Back in 2006, for example, Bill and Alla had attended Hugo’s fiftieth birthday party at a luxury estate in the English countryside, dancing late into the night. But the long friendship was subordinate in Bänziger’s mind to the paramount priority of damaging Jain. And what better way to do that than by dealing him a public defeat and simultaneously depriving him of Broeksmit’s expertise?
Bänziger’s sabotage campaign worked. BaFin, long in Deutsche’s pocket, was beginning to realize that if it had any hope of fending off foreign authorities, it needed to start policing the bank and showing the public some results. After grilling Broeksmit in Bonn, BaFin came back with a stunning answer: He was unacceptable as chief risk officer. And so his promotion was rescinded.
It was the first time Bill had felt the sting of public humiliation. The promotion had garnered considerable attention in the business media. The congratulatory emails and phone calls had been pouring in all month. Now he had to explain, over and over and over, that the job had been revoked. He called his mother and got her voice mail. “Easy come, easy go,” he told her, trying to sound nonchalant. When his brother Peter listened to the message, he could tell Bill was in pain. “There is no concealing the hurt,” he emailed Bill. Broeksmit told John Breit, the old Merrill risk manager, that he knew he should be relieved given all the inevitable headaches and heartburn of such a high-pressure gig, “but once I started thinking about the job, I liked it.” Anshu could tell he was devastated.
Worse was to come.