German Banks on Brink of Collapse

Over the weekend Germany’s top bankers failed to execute a rescue package for the Hypo Real Estate Bank (Die Banker haben versagt). In a desperate effort to forestall a run on the banks, Angela Merkel appeared with her finance minister Peer Steinbrueck on Sunday and announced that the German government would guarantee all private savings and checking accounts in German banks. The move only underscored the weakness of the European Union in dealing with the credit crisis with a unified European strategy.

Naturally, people in Germany are angry about what is happening to the economy and looking to assign blame.  Deutsche Bank is convenient target.  After all, Deutsche Bank was the primary carrier of the American bacillus to the German banks: it functioned as a conduit for Wall Street’s toxic securities, forcing German taxpayers to bail out Germany’s state-owned Landesbanken. So when DB’s CEO Josef Ackermann pleaded for a government rescue plan last week, the anger boiled over:

Peter Struck, head of the German Social Democratic Party’s
parliamentary group, castigated the head of Germany’s largest bank for
his comments, saying he "felt contempt" for the "type of
opportunism" shown by Ackermann.

"As long as the banks were on course for making profits, Mr.
Ackermann was the one screaming loudest that the state shouldn’t get
involved," Struck told news agency DPA, adding that Ackermann’s tune
has changed now that profits are threatened by the credit crisis.

Struck said that attitude made it particularly irksome that the head
of Germany’s leading bank is "now the first to call for massive aid
from taxpayer funds" to help prop up crumbling financial institutions.

Blogger Jochen Hoff is even more direct with his criticism of Deutsche Bank:

Es ist an der Zeit, die Deutsche Bank zu schließen oder zumindest zu
verstaatlichen und dann erneut in besserer Struktur und mit
verantwortlichen Managern neu an die Börse zu bringen. Vor allem aber
muss die Staatsanwaltschaft eingreifen und für Recht sorgen. (The time has come to shut down Deutsche Bank – or at least to nationalize it – and then bring it public again with a better structure and responsible management. Above all, the state prosecutor has to  intervene and bring the institution to justice.)

But Deutsche Bank is not the only culprit in the crisis. The Sueddeutsche Zeitung wrote about the fate of some German pensioners who were pushed by their banks to put their retirement savings into bonds issued by Lehman Brothers (so-called Lehman-Zertifikate).  They were told that these investments were "bomb-proof" (bombensicher). As Lehman Brothers was collapsing last month, Dresdner Bank issued an internal memo to its retail brokers with talking points to encourage its customers not to sell their Lehman Brothers bonds ("we do not see any reason to trade out of these securities.") While Dresdner was deceiving its customers, Lehman Brothers transferred $20 million in compensation payments to senior executives. It then filed for bankruptcy, wiping out the value of Lehman’s securities and retirement savings of thousands of German investors.

I worked at Deutsche Bank Securities on Wall Street back in the 1990s.  At the time, Deutsche Bank dreamed of becoming a "bulge-bracket" investment bank like its Wall Street rivals.  Specifically, it wanted to become just like Lehman Brothers. Now that Lehman is gone, Deutsche Bank has discovered the beauty of small depositers. It has purchased a controlling stake in the Postbank, and has its eye on the German savings and loan institutions (Sparkassen).

In an interview withe Sueddeutsche Zeitung, LEFT party leader and former German finance minister Oskar Lafontaine attacked the "criminal behavior" of Deutsche Bank: (Investmentbanker sind kriminell)

Lafontaine: Alle Investmentbanker, die durch fahrlässiges
Handeln ganze Volkswirtschaften in den Ruin treiben, sind kriminell.
Und speziell zur Deutschen Bank, deren Chef jetzt als Erster nach dem
Staat gerufen hat: Sie rudert über die Beteiligung an der Postbank
gerade zurück ans andere Ufer und sucht wieder das solide Geschäft mit
vielen Privatkunden. (All investment bankers who have driven the economy into ruin through their reckless actions are criminals. Especially the Deutsche Bank, whose CEO was the first to call for the state to rescue it. Now it’s sailing in the other direction and through its investment in the Postbank wants to build up a solid business with retail depositors.)