Something rather novel happened last week.
Colin Fan, co-head of Deutsche Bank’s investment branch, sent a video to the group’s traders informing them that “Being boastful, indiscreet and vulgar is not OK”. And whilst Fan choose not to opine on the status of motherhood and apple pie, he did go on to tell employees that he had “lost patience on this issue”, warning those who misbehaved in such a manner that “serious consequences” awaited them.
Since boastfulness, indiscretion and vulgarity are thought to constitute the very essence of trading room culture, how are we to interpret Fan’s video nasty?
Any explanation of his and Deutsche’s motives must take into account the form in which the message came; a supposedly internal video evidently meant, it seems, for external consumption. Coincidently, a couple of days after said video was “leaked”, the group announced plans to raise €8 billion in new capital.
Given the curious proximity of these two events, a rather cynical interpretation of Fan’s outburst may characterise it as a press exercise aimed at reassuring investors being tapped for funds that Deutsche has turned a corner, and that its ongoing “hunger march” for capital would not be prolonged by adverse reputational and financial actions from its trading room. In fact, Fan explicitly mentioned reputational risk in the video; warning traders that regulators could now review all of their internal communications, in effect asking them to keep it clean.
That said, it is perhaps unfair to rule out the possibility of Fan holding somewhat purer intentions, especially given the nature of Deutsche’s balance sheet.
As the organisation admitted this week by tapping investors, it needs more capital. A significant drain on capital has been, and continues to be fines and litigation costs, as acknowledged by the group’s co-chief executive Anushu Jain.
Deutsche, alongside almost every other major financial institution, has paid out its fair share in such “conduct costs” since the financial crisis, with its role in the Libor scandal, and the mis-selling of mortgage-backed securities, costing the German lender billions it could ill afford.
These costs, and their associated scandals, are of course primarily attributable to poor workplace culture; the kind of culture in which greed, arrogance, deceitfulness, and poor incentives, lead to return on equity being prioritised over the needs of customers and clients, as well as fraudulent and criminal behaviour.
Seen in this light, perhaps Mr Fan’s message to traders should be seen as a genuine attempt to re-shape the organisation’s cultural norms as part of a wider strategy to get the bank’s balance sheet back in order. Time will tell whether Fan’s efforts and admonitions are genuine; or indeed, if they are to be successful. Either way, they’ll certainly carry “serious consequences”.