Weekend Economists Down Under May 23-26, 2014

[Demeter]

28. Ex-Deutsche Bank CEO Says Technology Changed Bank Culture

http://www.bloomberg.com/news/2014-05-15/ex-deutsche-bank-ceo-says-technology-changed-bank-culture.html

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...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....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.”

MORE "GOOD OLD DAYS" NOSTALGIA