On July 7th, 2020, the New York State Department of Financial Services fined Deutsche Bank USD 150 million for its "significant compliance failures" in its relationship with Jeffrey Epstein, and two money laundering banks, Danske Bank Estonia and FBME Bank. Regulators criticized Deutsche Bank for "mistakes and sloppiness" yet given the scandal-plagued history of Deutsche Bank these lapses in due diligence seem routine.

In this two-part series, CGLytics begins by discussing past governance lapses and current controversies at Deutsche Bank and its effects on shareholders. We will then conclude in the second part by examining the Consent Order issued by the New York Department of Financial Services against Deutsche Bank in conjunction with CGLytics data, to show how a relative lack of risk expertise and governance skills on the Board exposes institutions to regulatory, reputational, and financial risks.

Complicated Background

Deutsche Bank started in 1870 as Germany's introduction to international banking and expanded quickly to Asia and through Europe within five years of opening. After losing assets during World War I, it rebounded through several mergers and acquisitions that allowed it to stave off the Great Depression. Deutsche Bank's original and most notorious governance lapse was during World War II, when the bank loaned the German government money to build the Auschwitz concentration camp and took part in the confiscation of over 300 Jewish-owned businesses between 1933 and 1938. After Germany was defeated, the bank was broken up into multiple regional banks in 1948, but by 1957 the aforementioned regional banks merged to form Deutsche Bank AG with its current Headquarters in Frankfurt.

Expansion & Introduction to Wall Street

Deutsche Bank entered retail banking in the 1960's through small personal loans and continued with its international expansion throughout Europe and Asia. It opened its first branch in New York in 1979.2 By the mid 1990's, Deutsche Bank had become increasingly involved in Investment banking in North America, culminating in the 1999 acquisition of Bankers Trust for USD 10.1 billion, which made it the fourth largest bank in the world. Following the re-opening of the stock market after 9/11, Deutsche Bank was officially listed on the New York Stock Exchange (DB), which allowed it to take advantage of the booming stock markets in the early-mid 2000's.

Scandals Galore

In the wake of the 2008 financial crisis, Deutsche Bank's reputation began to falter. It had sold roughly USD 32 billion of collateralized debt between 2004-2008. Notably, Greg Lippman, Deutsche Bank's former head of asset-backed securities trading called bonds "crap" in internal emails to colleagues, but promoted them as top investments to the public.4 It was forced to pay a USD 1.93 billion settlement in 2014 to the US Federal Housing Agency for selling subprime-mortgage backed securities to Freddie Mac and Fannie Mae. It was also forced to sign a USD 7.2 billion settlement with the US Department of Justice in 2017 relating to the sale of mortgage backed securities. The US Attorney General at the time, Loretta Lynch, stated that "Deutsche Bank did not merely mislead investors; it contributed to an international financial crisis."

In 2009, Deutsche Bank admitted to hiring a detective to spy on people who the Bank felt posed a threat, particularly a shareholder and a journalist. Deutsche Bank eventually fired its global head of investor relations for his involvement in the espionage, although the Bank's top executives claimed ignorance of the situation.

In 2015, it was fined a record USD 2.5 billion by American & British authorities for its involvement in the Libor interest rate (Libor rate is an average of what banks charge for lending to each other) scam between 2003-2007, during which its London branch pleaded guilty to wire fraud after accusations of manipulating interest rates which were in turn used to secure large international contracts and loans. Regulators required Deutsche Bank to fire multiple directors and other executives because of their investigation.

Later that year, Deutsche Bank was fined another USD 258 million for violating US Sanctions by doing business with sanctioned countries such as Syria, Myanmar, Libya and Sudan. Regulators discovered that between 2000-2006 over 20,000 dollar clearing transactions worth over USD 10 billion were disguised by Deutsche Bank. In addition to the fine, it was required to appoint an independent monitor and fire employees involved in the scandal.

In 2017 Deutsche Bank was fined USD 630 million by American and British regulators for lapses in their Anti-Money Laundering systems. Regulators stated that Deutsche Bank failed to flag illegal transactions and exhibited a complete lack of knowledge of who was trading what and where the money came from. This resulted in over USD 10 billion being laundered out of Russia through 'mirror trades between its Moscow, London and New York branches. During which clients purchased stocks in Moscow and subsequently sold them at the same price through the London branch, with the end goal of eventually being cleared through the New York branch's operations and being paid in US Dollars. Once again, as part of a consent order reached between Deutsche Bank and the New York State Department of Financial Services, Deutsche Bank was required to attain an independent monitor to review its internal compliance protocols.

Relationship with President Trump

Questions have also been raised about Deutsche Bank's relationship with President Trump. New York prosecutors subpoenaed Deutsche Bank seeking financial records that President Trump provided to it over the years, as they investigate possible fraud allegations. Their relationship goes back to the 1990's when Deutsche Bank was trying to establish itself as a mainstay in international investment banking. Deutsche Bank lent President Trump over USD 2 billion over decades despite numerous defaults up until his election. Former employees of Deutsche Bank's Anti-Money Laundering department stated in 2016 and 2017 that they had flagged multiple transactions involving entities controlled by President Trump and prepared Suspicious Activity Reports, but top-level executives at the bank never escalated the alerts. Tiffany McFadden, a former anti-money laundering specialist who stated she was forced out of Deutsche Bank after repeatedly raising concerns about internal protocols, stated: "You present them with everything, and nothing happens...it's the D.B. way. They are prone to discounting everything."

Corporate Governance Consequences

The various governance lapses Deutsche Bank had over the years took a toll on its share price, having declined over 80% since 2010, from as high as USD 123.60 before the 2008 Financial crisis. Glass Lewis called on investors to vote against ratifying Deutsche Bank's Chairman Paul Achleitner's actions at the Annual General Meeting due to "performance concerns". He subsequently announced, after three straight years of surviving shareholder votes to remove him, that he will step down once his term ends in 2022.


Previous CGLytics research unveiled a misalignment between pay and performance during Deutsche Bank's scandal plagued years. Deutsche Bank's Key Performance Indicators (KPI) were consistently negative between 2014-2018 due in part to the adverse information. Management suspended variable renumeration to assuage shareholder concerns, yet once the bank returned profit in 2018, management immediately restored incentive payments which shareholders felt were always excessive. Below are two graphs representing relative executive compensation of Deutsche Bank's Chief Executive amongst their European counterparts. And a third graph showing the decline in Deutsche Bank's share price since 2010


Historically, it has been difficult to quantify reputational risk. All the fines that Deutsche Bank incurred are easily identifiable from a regulatory perspective, and the subsequent share price decreases show the financial risk. This case highlights the importance of a top-down compliance culture, a good understanding of how to handle high risk customers, as well as the fallout if an institution fails.


In the second edition, CGLytics will dive into the specifics of the consent order issued by the New York Department of Financial Services regarding Deutsche Bank's relationship with Jeffrey Epstein, FBME & Estonia Bank.

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