22 December, 2009

Germany Bank Mergers & Acquisitions (Deutsche Bank)

Photo: A Deutsche Bank office in Kiel, northern Germany.

With special thanks to my German friend, who preferred to be known as "Li'l Wolf", for permitting me to use his photograph. You can see more of his photos via this link:


Deutsche Bank AG

Upon the authorization of its articles of incorporation by the King of Prussia, Deutsche Bank was established in Berlin in 1870. Its goal was to transact banking business to promote trading between Germany and other nations. Germany at the time was undergoing a major industrialization and economic expansion. By 1872, Deutsche Bank had set up offices in Bremen, Hamburg, Munich, Frankfurt am Main, Leipzig and Dresden domestically, and in Shanghai and Yokohama in China and Japan. At that time, Imperial China was economically, politically and socially backward, and major European and American powers had possessions, or territories, in the country. A number of German businesses held industrial interests in China and Deutsche Bank naturally needed a presence in China to serve its clients. In 1873, London became the bank’s first foreign office in Europe.

In the early 1870s, a credit bubble in Germany led to a major financial crisis and the failures of many German banks. Deutsche Bank took advantage of the distressed sector by acquiring two domestic lenders: Berliner Bank-Verein and Deutsche Union-Bank.

Throughout the 1880s and 1890s, Germany underwent a massive construction of infrastructure in power plants, electric grids, municipal lighting and tramway systems, and railway network. Deutsche Bank was at the forefront in financing these massive projects. Internationally, Deutsche Bank also participated in similar projects in Turkey, China, South America and the United States where German engineering was demanded. Most notably, the bank provided financing for the construction of the Northern Pacific Railway in America.

In 1894, Deutsche Bank, along with several other German, Austrian and Swiss banks, launched the Banca Commerciale Italiana (BCI). BCI specialized in long-term commercial and industrial lending very much like Deutsche Bank itself.

Deutsche Bank's network expanded further when Bergisch Märkische Bank and Schlesischer Bankverein were acquired in 1914 and 1917 respectively. The year 1914 also marked the outbreak of the First World War when Austria-Hungary declared war on Serbia, following the assassination, by a Bosnian Serb, of Archduke Franz Ferdinand, heir to the Austro-Hungarian throne. Within weeks, major European powers were at war due to a complex web of defence agreements with each other. When the Great War finally ended in 1918, 20 million people had been killed and the lives of countless more ruined. The German, Austro-Hungarian, Russian and Ottoman Empires also collapsed at the end of the War.

As part of the peace Treaty of Versailles, Germany was required to pay a huge 132-billion marks in reparations to the Allied nations. When terms of reparations agreement were made public, an angry outcry erupted in Germany. Against the economic and hyper-inflationary problems following the First World War, the Wall Street Crash of 1929 and its resulting Great Depression, the German and Austrian economies collapsed. Just before the October 1929 crash however, Deutsche Bank merged with longtime rival Disconto-Gesellschaft to form the Deutsche Bank und Disconto-Gesellschaft (the name was reverted back to Deutsche Bank in 1937).

Meanwhile, Adolf Hitler took advantage of the socio-economic turmoil to promote his nationalistic and racial-superiority Nazism. In a dark chapter of the bank's history, Deutsche Bank began to outs its Jewish directors and employees in 1933.

Throughout the 1930s, Adolf Hitler's government promoted militarism and engaged in a major rearmament movement. Deutsche Bank collaborated with Hitler by financing the weapons and ammunition industries, as well as purchasing debt securities from the Nazi government. Germany in 1938 made a bloodless, unopposed invasion of Austria, known as the Anschluss. The following year, Deutsche Bank took over Austrian bank Österreichische Creditanstalt - Wiener Bankverein, changing its name to Creditanstalt Bankverein. In the same year, Nazi Germany invaded Poland and soon formed an alliance with Japan, which had invaded China in 1937. These events set off the Second World War. During the war, the Nazi propaganda machine, which had taken over the entire German media, brainwashed the German population into supporting the brutal aggression against Germany's neighbours, as well as the extermination of the Jews, the homosexuals, the mentally ill and the physically disabled population across Europe.

By the time the Allies defeated Germany, Japan and Italy in 1945, tens of millions of people had been killed. Much of Europe and Asia was in ruins and the worldwide economy devastated. Germany itself was divided into zones of occupation: British, French, American and Soviet. The capital city of Berlin, itself entirely in the Soviet-controlled zone, was also divided into the American, British, French and Soviet zones. The British, French and American zones of Germany then became the Federal Republic of Germany (West Germany) in 1949, while the Soviet zone became the Democratic Republic of Germany (East Germany), which formed part of the Soviet-led communist Eastern Bloc of nations. Berlin itself was divided by the infamous Berlin Wall into the Western enclave of West Berlin and the communist East Berlin.

Following the Second World War, Deutsche Bank lost its entire network in East Germany in 1945, closed its head office in Berlin and operated out of Hamburg. It also gave up all its operations outside of Germany. Between 1947 and 1948, the Allies governments, determined to break up Nazi Germany’s old guards and remnants, forced Deutsche Bank to split into 10 regional banks. After much negotiation with the occupying forces, these 10 regional banks were amalgamated into three larger institutions: Norddeutsche Bank AG, Rheinisch-Westfälische Bank AG and Süddeutsche Bank AG.

In 1957, these three regional banks were reformed into a new Deutsche Bank AG based in the emerging financial centre of Frankfurt am Main. Unlike the old Deutsche Bank that focused on large-scale industrial and commercial lending before the war, the new bank launched new personal banking products such as savings accounts and personal loans. The bank began to rebuild its international operations in the 1960s by opening offices in South America, the Far East and the Middle East. In 1968, Deutsche Bank joined forces with Amsterdam-Rotterdam Bank (later ABN AMRO), Midland Bank (acquired by HSBC in 1992), Société Générale de Banque (today’s BNP Paribas Fortis) to establish the European American Bank & Trust Co. in New York. In 1972, the four-bank consortium again co-operated in the founding of European Asian Bank (Eurasbank). European Asian Bank existed until 1986, when Deutsche Bank acquired its entire ownership from the other partner banks and changed its name to Deutsche Bank (Asia). As for European American Bank, the European banking consortium decided to sell it to ABN AMRO. Subsequently ABN AMRO sold European American Bank to Citigroup in 2001.

In 1979, Deutsche Bank reopened its office in New York, the first time since the Second World War that the bank had a direct presence in the U.S.

In 1986, the bank bought BankAmerica’s Italian subsidiary, Banca d’America e d’Italia, for USD $603-million. Deutsche Bank gained about 100 branches in Italy from the purchase.

The bank began to aggressively expand its international commercial and investment banking operations in the 1980s and in 1984, acquired a 4.9% minority stake in British investment bank and stockbroker Morgan Grenfell Group plc. In 1989, Deutsche Bank acquired the rest of Morgan Grenfell for USD $1.42-billion, valuing the entire broker at USD $1.49-billion. Morgan Grenfell was established in 1838 and was closely related to J.P. Morgan & Co. at one point. The purchase gave Deutsche Bank a major foothold in the crucial London capital market.

The year 1989 of course also marked the fall of the infamous Berlin Wall and the subsequent re-unification of the two Germanys. In the summer of 1989, political liberalization in Poland, Hungary and the Soviet Union led to the relaxation of the Hungarian-Austrian border, allowing for the first time in decades Hungarians direct access to the West. Thousands of East German tourists in Hungary took advantage of the rare opportunity and "escaped" to Austria. Massive rallies then erupted in East Germany demanding political freedom. On 1989-11-09, the old guards conceded defeat and opened the tightly controlled border at Berlin Wall that had separated East Berlin and West Berlin since 1961, essentially allowing East Germans free access to West Germany.

The collapse of the communist regimes all across the Eastern Bloc (Warsaw Pact) nations led to the re-unification of East and West Germanys in 1990.

Recent transaction(s):

  • In March 1990, in preparation of the re-unification of West Germany and East Germany, the formerly state-controlled banking offices in communist East Germany were re-organized into a new, private-sector bank called Deutsche Kreditbank AG. In April of the same year, Frankfurt-based Deutsche Bank formed a joint-venture with Deutsche Kreditbank in which 122 braches of Deutsche Kreditbank in Germany (East) were transferred to the new joint-venture called Deutsche Bank-Kreditbank AG along with 8,500 employees. Deutsche Bank took a 49% stake in Deutsche Bank-Kreditbank for DEM 148.5-million. Deutsche Kreditbank owned 47% of the shares, with the remaining 4% being held by four institutions.
  • In 1993, Deutsche Bank entered into the Spanish retail banking market when it acquired the Banco de Madrid for USD $365-million. Banco de Madrid had a network of 318 branches.
  • Later in 1993, Deutsche Bank further expanded its Italian operations by acquiring a 58% stake in Banca Popolare di Lecco for DEM 470-million (USD $276-million). Deutsche Bank made the same offer for the remaining shares, valuing the whole deal at DEM 810-million (USD $476-million). The purchase expanded Deutsche Bank’s network in Italy to 260 branches.
  • In 1999, Deutsche Bank purchased U.S. trust, corporate and investment servicing specialist Bankers Trust Corp. for USD $10.1-billion. The purchase propelled Deutsche Bank to become the largest bank in the world in terms of assets at the time, surpassing UBS and Citigroup.
  • In 2000, Deutsche Bank bought the 84% stake of National Discount Brokers that it didn't yet own for USD $886-million.
  • In 2001, the Big Three in Germany, Deutsche Bank, Dresdner Bank and Commerzbank merged their mortgage bank subsidiaries Eurohypo, Rheinhyp and Deutsche Hyp into the new EuroHypo AG.
  • In 2001, Deutsche Bank bought Zurich Scudder Investments Inc. from Zurich Financial Services AG for USD $1.2-billion in cash plus USD $1.3-billion in asset swap. Zurich Scudder was the U.S. asset management unit of Zurich Financial and managed USD $278-billion of assets. Threadneedle Asset Management was excluded from the sale and remained as part of Zurich Financial. As part of the agreement, Zurich Financial also received 75.9% of Deutscher Herold and 100% of Bonnfinanz, DGV (Deutsche Gellschaft für Vermögensberatung), as well as Deutsche Bank's life insurance operations in Italy, Spain and Portugal from Deutsche Bank. In return, Deutsche Bank acquired ownership of Zurich Financial's asset management businesses in Germany and Italy.
  • In 2003, Deutsche Bank acquired private bank Rued, Blass & Cie. AG from Zurich Financial for an undisclosed amount.
  • In 2006, Deutsche Bank acquired the 60% stake in Russia's United Financial Group for a reported USD $400-million. Deutsche Bank had owned 40% of the Russian brokerage firm since 2003.
  • In 2006, Deutsche Bank acquired a 9.9% stake in China’s Hua Xia Bank for about Eur 192-million.
  • In 2007, Deutsche Bank bought Abbey Life Assurance Co. from Lloyds TSB's insurance and pension management subsidiary Scottish Widows for GBP 977-million (Eur 1.4-billion, USD $1.98-billion). Abbey Life managed GBP 12-billion of assets (USD $24.3-billion) and had over 1.2-million policies. The Abbey Life Assurance bought was unrelated to Abbey plc's life insurance businesses bought by Resolution plc from Abbey plc in 2007.
  • In April 2008, Deutsche Bank bought 60% of Taiwan's Far Eastern Alliance Asset Management Co. Ltd. from its parent Far Eastern Group. Terms were not disclosed.
  • In September 2008, Deutsche Bank raised Eur 2.2-billion by issuing 40 million new common shares.
  • In October 2008, Deutsche Bank completed the capital increase at Hua Xia Bank, raising its stake from 9.9% to 13.7% for Eur 352-million (CNY 3.91-billion). Hua Xia Bank operated 303 branches in China.
  • Also in 2008, Deutsche Bank agreed to buy 29.75% of Deutsche Postbank from Deutsche Post for Eur 2.79-billion (USD $3.95-billion). Deutsche Postbank served 14.5-million individuals through its 850 branches. As part of the deal, Deutsche Bank had the option to buy another 18% of Postbank within three years, as well as the first right of refusal to acquire the remaining 2.25% held by Deutsche Post now. (Deutsche Post held 50% plus one share of Postbank before the sale to Deutsche Bank.) This agreement was revised later (see below).
  • In 2009, the Postbank deal was revised to include less cash but at an accelerated rate. Under the new agreement, Deutsche Bank issued Eur 1.1-billion (USD $1.45-billion) of new shares in exchange for an immediate 22.9% stake in Deutsche Postbank. The seller, Deutsche Post, ended up owning 8% of Deutsche Bank. Deutsche Bank also bought Eur 2.7-billion (USD $3.56-billion) of Deutsche Post bonds that would be converted into 27.4% of Deutsche Postbank shares after three years. Finally, Deutsche Bank would pay Eur 1.1-billion for options representing a 12.1% stake of Deutsche Postbank to be exercised between the 36 and 48 months after the closing of the transaction.
  • In October 2009, Deutsche agreed to buy the Luxembourg-based wealth management business of Sal. Oppenheim Jr. & Cie. SCA. Group for Eur 1-billion (USD $1.48-billion). Sal. Oppenheim had EUR 137-billion of assets under management.
  • In April 2010, Deutsche Bank bought certain parts of ABN AMRO's Dutch commerical banking operations for EUR 700-million. They Dutch state, ABN AMRO and Deutsche Bank had been in talks over the terms since August 2008.
  • In May 2010, Deutsche Bank subscribed to CNY 5.75-billion (EUR 636-million) of new Hua Xia Bank shares, raising its stake to the maximum 19.99% allowed of a Chinese bank by foreign investors.
  • In May 2014, Deutsche Bank announced that it would withdraw from both the London silver fix and London gold fix processes as part of its plan to exit most commodities trading. Without Deutsche Bank's participation, the London Market Fixing Ltd. announced that the last daily London silver fix will be published on 2014-08-14, ending a 117-year tradition.  HSBC and Bank of Nova Scotia are the other two silver fix members currently.
  • In March 2015, Deutsche Bank partnered with private-equity firms Kohlberg Kravis Roberts (KKR) and Värde Partners to acquire GE Capital's Australian and New Zealand consumer finance business for AUD $8.2-billlion (USD $6.26-billion). The business had more than 3-million clients and offered personal loans, credit cards, as well as interest-free financing for products sold through retailers in Australia and New Zealand.
  • In April 2015, Deutsche Bank announced that it would spin off its Postbank division, exiting the post office retail banking operations.
  • In December 2015, Deutsche Bank agreed to sell its entire 19.99% stake in Beijing-based Hua Xia Bank to China's PICC Property & Casualty Insurance for between CNY 23.0-billion to 25.7-billion (EUR 3.24-billion to 3.62-billion, USD $3.54-billion to $3.96-billion). Hua Xia had about 90 branches in China.

Click here to return to the Index page.