Hilmar Kopper, who took Deutsche Bank AG (DBK) into the league of global securities firms more than 20 years ago by buying investment bank Morgan Grenfell and hiring Merrill Lynch & Co. bankers, says electronic communication is driving a cultural shift in the industry lambasted for greed.
“Culture changes are caused by environmental changes,” Kopper, who was Deutsche Bank’s chief executive officer from 1989 to 1997, said in an interview in Frankfurt. “They’re about recognizing in time that a new environment or technology means you have to do and control things differently, train people differently, and create a different awareness.”
Global investment banks including Deutsche Bank are taking steps to regain public trust as regulators probe whether they sought to profit by rigging interest rates and currencies. Digital records of traders discussing alleged rate manipulation have provided investigators with evidence to punish the companies and pushed CEOs to enforce compliance.
“It feels like what you type is gone, not documented, just somewhere on the computer,” said Kopper, 79. “People don’t understand that a hard drive is permanent, hence the name. That’s the new culture and challenge we have to deal with.”
At Deutsche Bank, Kopper introduced measures to improve ethics and conduct in the days before chat windows and e-mail became the main channels of communication in trading rooms, he said.
“I was disgusted,” said Kopper, who joined the Frankfurt-based bank’s management board in 1977. “Insider trading wasn’t punishable, so it was done. Front-running was normal,” he said, referring to traders using knowledge about client orders to buy and sell securities for their own books in advance.
“I belonged to the generation that objected,” he said. Kopper said he established rules that stopped managers from buying bonds before the bank arranged a sale for a client.
Insider trading became illegal in Germany in August 1994 as the country began to implement the securities trading act.
Before that, banks and investors committed to voluntary self-controls starting in the early 1970s.
After his tenure as CEO, Kopper worked as chairman of Deutsche Bank’s supervisory board until 2002. He then held the same position at HSH Nordbank AG, a state-owned bank based in Hamburg, from 2009 to 2013.
Efforts by Anshu Jain and Juergen Fitschen, who lead Deutsche Bank today, to overhaul the bank and stamp out misconduct can only be measured once Deutsche Bank has put the alleged missteps behind it, Kopper said.
“It’s a mixed bag at the moment,” he said. “They’re doing a good job given the task at hand.”
Jain, 51, and Fitschen, 65, declined to comment on Kopper’s remarks through Michael Golden, a spokesman for Deutsche Bank in London.
The two men, who started as co-CEOs in June 2012, pledged three months later to impose stricter sanctions on staff found to have breached codes of conduct. The firm published six values for employees to observe in the interest of shareholders, clients and society in July last year.
Deutsche Bank says it’s cooperating with regulators probing various markets and that it has and will take disciplinary action against staff, if merited. It banned its investment banking staff from using chat rooms last year.
Regulators are still poring over records of conversations between traders in the probes of alleged attempts to rig Libor, used to price $300 trillion of contracts from student loans to mortgages, and the WM/Reuters rates, which determine what many pension funds and money managers pay for their foreign exchange.
While some traders may have colluded in an attempt to rig benchmarks, it was probably impossible to pull it off given the time available and the number of submissions that would require coordination, Kopper said.
“I used to be a currency trader, I know what it’s like,” he said. “You lived by calling up a competitor and asking him where he saw the franc. He’d say he had a bad feeling. That could be a lie and he’d do the opposite, but that was how we communicated. Today, that’s on the verge of being punishable.”
Kopper played a central role in Deutsche Bank’s transformation to a global investment bank from a lender focused on German companies. He oversaw the 1989 purchase of London-based Morgan Grenfell before hiring Merrill Lynch bankers including Jain in 1995.
The transformation into an investment bank paid off even if it meant Deutsche Bank became embroiled in the alleged wrongdoing that’s now wracking the industry, Kopper said.
“We need to offer this,” he said. “If we pulled out, we’d be back where we were in 1990, when all our big German clients didn’t want to play with us but rather with those who could talk about what you needed, namely, investment banking.”