David Enrich on Deutsche Bank’s Clean-Up (Podcast)

Bank and how what was once a sleepy, backwater German bank. Okay, they also helped funds the Holocaust and the Nazi war machine, but how they ended up having global aspirations in the nineties and two thousand's, briefly becoming the biggest bank in the world before an epic collapse. David is a really interesting investigative journalist. He does a wonderful job flashing out the characters in his book, who are all real people. This isn't fiction. He is telling a story about what happens,

how it happens, and why. And he had access to a treasure trove of documents and emails. In the Deutsche Bank story, it's just utterly utterly compelling if you're at all interested in stories of malfeasan set joint financial institutions. This is up there with When Genius Failed and other such issues, only this one involves criminality, not bad training decisions. So, with no further ado, my conversation with The New York Times David Enrich. This is Masters in Business with Barry

Ridholts on Bloomberg Radio. My special guest this week is David Enrich. He is the finance editor at The New York Times. Previously, he was an investigative journalist at The Wall Street Journal. He is the author of several books, most recently Dark Towers, Deutsche Bank, Donald Trump, and An Epic Trail of Destruction. Previously, he wrote The Spider Network, a book about the libor manipulation. David Enrich, Welcome back

to Bloomberg. Thanks for having me to Barry. So we had you on a couple of years ago to discuss The Spider Network, which I thought was a fascinating tail. It it read like a spy novel almost and a very short period of time elapse between that book and Dark Towers. Obviously there's some overlap with Liebor and Deutsche Bank, but why so quick? Between the two books? How did the new one come about? Well? Why so quick? Is the same question I've gotten from a number of people,

including my wife. And you know what the reality is, when you've got a good idea for a book, they don't come around that often, at least not for me, and so you kind of jump at it at the opportunity while you can. In this case, I mean, I've been upset things about Deutsche Bank for really the better

part of the decade. Um back. I've been working with the Wall Street Journal in London from two thousand two sixteen, and during that period I was covering with banking and finance, and you know, the biggest most troubled bank at that time was Deutsche Bank, and it was it was pretty technical and industry specific story. It was not something that captured much public imagination, I don't think outside of the

finance world. But with the election of Donald Trump and given his very close ties to Deutsche Bank over a long period of time, the story kind of started becoming

a much more palatable story for the general public. And I felt like I was in a really good position to tell that, so I, you know, just grabbed the opportunity while I could, and I do wish in hindsight, I had It's hard writing a book, you know, it takes a lot of time, and it's this labor of love but also his objects of complete in total obsession,

and I've got little kids, and so it was. It was not the easiest couple of years doing this, especially when you're writing about a topic that is changing in real time, ongoing investigations, ongoing soft price fluctuation. How did you deal with the fact that this story continued past when you put your pen down. Well, that's an interesting question.

I made a decision pretty early on in the consulta issue with my publisher that this is not going to be a book that told you everything in the world about Deutsche Bank, and tried to break a lot of news about the current ongoing kind of reorganizations at the

bank and restructurings and things like that. There was it was going to be, and you know, as you probably know, like eight percent of the book of the book is the story of how Deutsche Bank grew from this provincial, really German focused bank into this global juggernaut and into this epic disaster, and so much less of the book is spent focusing on the past, basically from the two thousands sixteen period, two seventeen period onward, where the bank

has been in this pretty hardcore cleanup mode. And so I had the liberty of just kind of drawing a line basically around the time that shortly after the time that the bank's leadership changed for you know, the eighteenth time and uh, and so I really that made it a lot easier to kind of put blinders on. Obviously, I focused very I paid a lot of attention to what was going on with the various reorganizations and the new leadership. And I said a lot of time talking

to people who were involved in that. But what I was not particularly worried about every little incremental twist and turn as related to the bank and its financials. I was much more interested, frankly, in in terms of things that were moving, uh, you know, as I was writing, as it related to investigations on money laundering and Donald Trump. And so I spent I did spend a lot of time both in the book and also doing reporting and writing for the New York Times, uh, on those kind

of live topics. The other things that were much more coming out of Germany, where I you know, just in addition to not think move that core to the narrative in the book, I also just simply wasn't as well sourced.

So um, I kind of just narrowed my field of vision a little bit, which I think was it is a little bit of a gamble, and I think it frankly, it will probably make the book a little you know, less satisfying in some ways to a certain um slice of the world that is really obsessed with understanding where

the bank currently is. Uh, But I think for the vast majority of readers it's a pretty good look at how the bank and how the bank on to some soone, how good companies in general get into someone trouble in the kind of decisions and incentives that are set up along the way that really lead down this pretty disastrous path.

And to me, going to bank is just this classic case study and how not only how not to run a business, but the perils of growing too fast and incentivizing people to essentially make just very bad decisions over and over to them. So you hit on exactly a question I was going to ask later, but I might

as well ask it now. When we look at some of the biggest disasters of the past decade, whether it was the collapse of We Works or all the trouble that Uber got into, or go back to Lehman Brothers, Deutsche Bank did many of the same things, disregardful legality, incentivizing people for profits regardless of the consequences, effectively short term versus long term greedy. Is that a fair assessment

of Deutsche Bank. Yeah, absolutely, I think that the bank, and I think it's actually deeper than that in some ways. I mean, thanks are obviously kind of peculiar beasts, right, I mean, they are entrusted with essentially operating the economy to a large extent for the entire world. And so unlike an Uber we Work, which is important in its own right, and it is kind of transformed the way we live or work. It's banks occupied this very special role at the heart of the financial system and therefore

the heart of the economy. And to me, there's one of the most important shifts that taken place in the global finance in the past I don't know, thirty years at this point, I guess, is the transition from banks being viewed as these kind of the profitable but not egregiously profitable. They really, um, they have been much more

like public utilities. And they're to kind of grief the years of the global economy and this transition that a place that the coincides large was a big wall throught firms going from private partnerships into publicly traded companies and then later becoming banks. Uh, toward these just ridiculously fat profit margins has been It's been very destructive for the banks themselves in many cases, but it's also been very destructive for the economy and for the financial system, I think.

And so Deutsche Banks transition from being this you know, pretty plain vanilla German lender that was primarily focused on helping big German companies spread their wings internationally and to a lesser extent, helping non German companies enter the German or European markets. And you know, those were very study

businesses and very important businesses. And in Deutsche Bank, as a result of that, played a leading role in the development of railroads in the nineteenth and early twentieth centuries. It played a leading role in the reconstruction redevelopment of Europe after World War Two and going out into the mid nine reason as the iron curtains cell it played.

The bank played a leading role in helping to globalize the economy and knocked down by unhealthy barriers to economic development in some countries, and it was the banks CEO up until the late nineteen eighties was a leading advocate of forgiving thirdal depths, for example. And so it was a bank that occupied this role not only you know, providing banking services, but was it viewed its role as kind of essential and intertwined with the fate of Germany

and the fate of Europe. And that sifted very dramatically starting in the mid when the bank got a taste for Wall Street and it decided that it was going

to prioritize short term profits above everything else. And you know, I think we'll probably get into this later, but that led to a complete transformation of the bank's culture and one where literally the only thing you were supposed to look at when deciding whether to do a certain transaction or to bring on a certain client or make certain investments as a business was what will the impact of this decision be on our profits this quarter or maybe

this year. But there's no consideration to what will this dud our reputations. What will this dud our business five years from now? Is this sustainable? Is this smart? And you know that that kind of just blinders on short term decision making has very anticipatable consequences, and in a business like banking that is highly levered, the seriousness the gravity of those mistakes is dramatically amplified, to say the very least. Removing the risk from the risk reward analysis

naturally leaves to certain outcomes. So let's talk a little bit about that rise and fall we discussed earlier. In the nineteen eighties and nineties, Deutsche Bank was a sleepy regional bank in Germany. Of its profits came from testing banking, and once this transformation and embrace of derivatives and aggressive risk and trading and leverage took place, that shut up to eighty five percent a year later. How did this

happen and how did it change the culture at Deutsche Bank? Well, the in those kind of two very related questions, and and the way it happened is that starting in the mid the banks leaders saw that the big American banks were making a tremendous amount of money on Wall Street and also making a tremendous amount of money and kind of approaching on the turf of European banks like Deutsche Bank and Goldman Facts. Famously one a big deal taking Deutsche Telecom private, and that that was a kind of

assignment that had traditionally gone to the hometown banks, European banks. Instead, Deutche Bank got a role in that deal, the Goldman Facts as the lead and that was a huge wake up call to Deutsche Bank executives that, you know, Wall Street was coming to invade their turf. Maybe it's time

for them to go invade Wall Streets turf. And so, starting in the bank went on this epic hiring spree where it brought in initially a small group of salesmen and traders from Mary Lynch and basically gave them a blank check to hire as many people as they could, and they went on to hire thousands of people from the big Wall Street firms of the time, very very quickly, and that very quickly transformed that or began to transform the culture from an institution that was primarily a German

one to one that was much more international, and the locals of power started to shift slowly but surely from Frankfort and Berlin to London and to a lesser extent in New York. And even with spending billions of dollars hiring thousands of people in this very fast manner, the bank up much biggers actually in derivatives, but it still was kind of a second tier, maybe even third tier player on Wall Street and in many other many markets

around the world. So in the late ninety nineties, so a few years after it started this expansion, the bank decide that it really needed to double down on this strategy, and so they went shopping for a big Wall Street firm to buy, and they, you know, they were looking at the likes of Mary Lynch Lehman Brothers, Uh and Bankers Trust, which at the time was kind of one

of the most swashbuckling firms on Wall Street. It was in pretty serious financial trouble because of very bad that it's made on derivatives, and the FED was actually looking for a stronger financial institution to come in and acquire bankers Trust and basically take the mess off the FITS hands.

And so the SAD learned that Deutsche Bank was in the market for a deal and kind of broker disagreement where Deutsche Bank in would spend ten billion dollar ers to buy bankers trust, and so that deal happened and almost overnight the bank was transformed. I mean, as you mentioned, the share of the bank's overall profits that came from investment, banking and sales and trading went up and more than

tripled basically at the stroke of the pen. And but it also are more important, really just completely changed the bank's culture and the power had gone from being in Germany and now is clear that since the overwhelming majority of the bank's profits were coming from London and New York, that's where the power centers should be. And so you know that there were kind of very there's some cosmetic changes where I think pretty symbolic, like the bank's official

language went from being German to English. But the more important ones were that the supervisory board of the bank, which was primarily consisted of German industrialists and corporate chieftain and even labor leaders, was completely It was just neutered essentially, and instead the mandate became, look, we're going to step on the gas. We want to be as big as we can, as profitable as we can, as quickly as

we can. And so the bank just underwent this really revolutionary change where they had metrics that measured how profitable they were, how quickly and that was they were. They were using a metric called return on equity, which traditionally a banks return on equity would be in the maybe

high single digits, very very low double digits. And the newly appointed CEO in two thou too, Joe Ackerman, who is himself a credit Swiss veteran, came in and said that we want in the next two years for our return and equity to go to and you know, that was a huge jointment. At the time that he made that prediction. I think the return on equity was four or five percent, So he was basically called in the period of two or three years for that to increase

what I guess which is you know, exbraordinary. And the crazy thing is they achieved it, and he by the mid two thousands Deutsche Bank had gone had become one of the most profitable places on the planet and the but again, the decision, the way they achieved that was it really wasn't that complicated. They started evaluating every transaccident and every client they did based on it's the return on equity. So they were not going to be able to make a profit on a loan or another transaction,

they simply wouldn't do it. And if a client like a German mid sized business for example, wasn't going because that relationship wasn't going to generate that huge return, they would drop the clients. And so the reality was that most of the business the bank had been doing in Germany it was not all that profitable, and part because the German banking system has this huge lot of banks,

so there's intense competition, which drives prices way down. So let me let me circle back to something you said before we drift too far away the supervision of the bank. What is the valve stat I don't know how to pronounce the divorce the divorce and the management board, and then there's the supervisory board, which is really supposed to

be the oversight board. So between those two entities and the Federal Reserve and the UH, the various regulators in the UK and the regulators in Germany, how did Deutsche Bank manage two skirt regulations, to skirt risk management, to hide losses, to do all these things that bad banks have a tendency to do for years and years and

years that this went on for almost two decades, didn't it. Yeah, And you would think, given the number of regulators that were supposed to be overseeing the bank, you would think that it would have been very hard for them to do that. And the reality be as the exact opposite, which is that there was a patchwork of weak regulators all over the globe, and the bank very deathly played

those regulators off each other. So the result was that almost no one was actually doing substantive kind of hard nosed oversight of them, and often which is the German bank regulator was it wasn't is notorious for essentially playing defense on behalf of hometown companies, and so Boten would essentially demand that any regulatory inquiries that came from the US or the UK had to be routed through this labyrinth of German bureaucracy and and in some cases to

prevent the bank from complying with regulatory requests from outside of Germany. And the FED, for its part, which was really supposed to be aggressively overseeing a large swath of the banks US business, and the FED knew that there were really serious problems gone on. Weather it was uh, you know, weak defenses against money laundering or did the quality integrity of the financial data the bank was producing.

And over and over again the FET voice these concerns to bank starting around two dozen two, and over and over again, the bank did nothing to actually address the sects concerns, and on a number of occasions the FETE came in and punished the bank. That these were punishments. That were to describe them as light touch would be really like abould be exaggerating it. It's you know, they were not even imposing any monetary penalties, they were not

publicly admonishing any executives. They were just very weak written orders. And the bank and executives I talked to said explicitly that the fact of the matters, they knew that the consequences from misbehaving were not really that severe, and so in the benefits to misbehaving in some cases were very attractive, and they could make a lot of money providing services like money laundering or or you know, money transfer services to countries that were under U S sanctions, And it's

a pretty easy decision for them. Quite fascinating. So let's talk a little bit about Russia and Deutsche Bank and Trump and I have to start with the question, how is it that Deutsche Bank was the only bank in the world that actually would lend money to Donald Trump? What's the background there? Well, the background is that banks, as a general rule don't like lending money to people or institutions that have a tendency of defaulting on their loans.

And that is a pretty good description. Knows exactly what Donald Trump was in the late nines, and he had repeatedly defaulted or his companies had repeatedly defaulted on their debts. And as a result of that, mainstream financial instantiations were very, very wary about doing any any business with them because it wasn't Deutsche Bank considered a mainstream financial entity. How different were they from JP Morgan or Best Starts? Well,

in the US, they were very different. And this was the period where Deutsche Bank was trying to really establish a name for itself and make inroads in the U S. It was more or less a nonentity at the time, and so the bank set out to try and build a business, in particular business of commercial mortgage BacT security, so basically making big real estate loans and then packaging those into bonds. And you know the key the first key step to that is finding commercial real estate clients

to lend to. And they it was very hard for them to establish profitable relationships with the kinds of big names in commercial real estate, as they were already banked by much bigger banks, by JP Morgan or Bear or City, and so they had to go kind of fishing for the scraps. And it just so happened that Trump at the time was in need of money himself, and so

they paired up. And it's kind of a match made in heaven to do with this bank that's desperate for clients in the US and you have this businessman who's desperate for a bank. And so starting in, the bank made several hundred million dollars of loans Trump in a very short period of time, and every basically off to

the races from there. What's fascinating is Trump had a relationship with Deutsche Bank and then he stiffed them on a loan and came back to that same division and was soundly rejected, but somehow managed to talk a different division into making a new loan to him. Could could you So essentially one division paid off the loan to a separate division. Could you explain that, yeah, and this is actually not the first time that has happened at Deutschment.

There are at least two other occasions where the bank, one part of the bank made a loan or is he's debt for Trump and he defaulted and he was off limits for that division, and then comes back to another division of the bank and find a way to

do business with them. The most famous example of this is in two thousand eight, he defaulted on uh Dave loan to finance the Chicago skyscraper, and there's all sorts of litigation where Trump suites the bank, and eventually they reached a settlement that says Trump has to repay a certain portion of that loan in a couple of years. And so that brings you to two thousand eleven or so and Trump reaching Trump through Jared Kushner, his son in law, who had a relationship with a private banker

at Deutsche Bank named Rosemary Rablick. Kushner introduces his father in law to Rosemary Rablick works in the private banking division, and basically Rablick and her boss make a decision that even though the bank has been burned by Trump, even though he's off limits to the most of the bank. They are willing to take that risk and start a new relationship with him, bring him on, bring him back on as a client. And so the bank makes a couple of loans to him starting in early two twelve.

One of them is to finance the acquisition and renovation of the door Al Golf resort in Florida. But the other is, I believe a forty eight million dollar loan to Reap that's used primarily to repay what Trumps still owed this different division of Deutsche Bank for the defaulted loan on the Chicago Tower. And that is uh. I don't know. I've been covering banking and finance for almost twenty years now, and I've never seen anything like that.

And I still talk to people in the banking world today who are just kind of, you know, their jaw just drops when they hear the story. It's not something that a normal bank with proper risk management and a good cohesive internal culture would ever dream of doing. And for obvious reasons, right it's embarrassing for the bank. The bad credit risk and the potential reputational damage of getting back in bed with this guy actor. He's already stiffed

you multiple times. It just doesn't make much sense, right, quite amazing. I love the anecdote within the book about Trump's relationship with bear Stern. He was buddies with their CEO A. S. Greenberg. And even though Ace and him or friends, Ace won't sign off on a loan. And the poor banker that has to call Trump to tell him that A said no, has this brilliant way of letting him down. Uh, And he says to Trump, Ace

loves you. The reason he doesn't want to do it is because he told me there are four guys in the world he doesn't want to be on the opposite side of the table from Bill Gates, Warren Buvett, Henry Cravis, and you how Unearthed could such a transparently but kissing ploy work on anybody? It was, really, it was perfectly and it's perfectly tailored to the client in this case. And you know, I sometimes has a skeptical cynicals journalist and roll my eyes when investment bankers like both about

their skills and how valuable they are. But I'm gonna tell you, when I heard this story related to me by by the banker who pulled this off, I was just so impressed. It is a real in addition to being hilarious, he knew his client, He understood the psychology of his client and managed it perfectly. Who knew that know your client rule could ever be applied in such a brilliant way. Let's talk a little bit about Deutsche Bank.

What sort of ties did Jeffrey Epstein, who, even after he's been dead, still keeps popping up in the news. What sort of ties did Epstein have to the bank? Well, Epstein's relationship with the bank is not as long as the bank's relationship with Trump, but in a lot of

ways it's much work reaches. And starting around two dozen twelve, Epstein's longtime bank JP Morgan decided that it could not continue to do business with him, in part these we've been, you know, publicly convicted of sex crimes and there are all these rumors flying around about continued stuff that he was doing and whether it was being a predator or money laundering, and so they cut tout Japan Morgon cut ties with Epstein, And within months of that decision to

cut ties with him, the banker at JP Morgan, who had managed the Epstein relationship, left JP Morgan and was hired by Deutsche Bank, and as far as I can tell, one of the first things he did upon walking in the doors at Deutsche Bank was to convince his superiors that they should rein basically maiate a relationship with Jeffrey Epstein, and very quickly the bank brought Epstein on as a client and started not only lending him money but providing

all sorts of kind of account management and cash management services to all these shell companies he was creating. And the relationship lasted up until almost last summer, basically and just very shortly before Epstein was arrested and charged with operating a sex trafficking room. And again, the really remarkable thing here is not some that they the bank was willing to take risks on the client that other banks found unacceptable, because that is, you know, we just we

already know that about Deutsche Bank. Was really remarkable in this case that a number of employees up and down the food chain at the bank rings really serious concerns about this business. And there is their concerns about doing

business with convicted criminal. There were concerns about all the rumors swirling around about his continued criminality, and there were concerns from anti money laundering officers inside the bank that he was using the bank to launder money, And time after time, those concerns were voiced to executives of the food chain and discussed by executives at a pretty senilor level within the bank, and the concerns were just tossed aside.

They decided the risks were not so severe that it would justify ending a relationship that was turning out to be quite lucrative for the bank. So let me push back on your earlier statement that Deutsche Bank's culture has changed, and I'm gonn go someplace from the book that I wasn't planning on, but I now have to based on what you just said. Deutsche Bank is the entity that effectively funded the construction of concentration camps at hit under Hitler,

that they were essentially Hitler's banker. They fired all of the senior managements who were Jewish, they confiscated a lot of Jewish assets. Deutsche Bank was a really bad actor during the period leading up to the war and during the war. So the question I have to ask is, how is this morally bankrupt, corrupt entity today any different than the bank that helped fund the Nazis. Yeah, that's a I mean, that's a good question as and and you're totally right first of all, that Deutsche Bank was,

as a saint the book, a party to genocide. I mean, it was a criminal enterprise. The US wanted to dissolve Deutsche Bank after World War Two because of its participation in war crimes. It's CEO was tried and convicted of being a war criminal. And I mean, look, there's I think a danger in equating the crimes that took place in the genocide that took place in the war, crimes that took place with the crimes that Deutsche bankas has

committed in the past twenty years. And these the crimes in in the Holocausts were just I think unique and uh just uniquely awful. And I'm not sure anything they've done today really composed that. But I also think that that was and I'm not at all trying to defend the bank's conduct during that period because it's indefensible, but

that was an extraordinary moment in corporate Germany. And there are a lot most in fact, most of the big German companies at the time participated one way or another in genocide, and whether it was chemical companies manufacturing poison gas or banks helping uh, you know, time as the Nazi war effort, and a lot of those companies and are auto manufacturers making cars or tanks or things like that,

and a lot of those companies still exist today. And you know, so I'm not sure it's I'm kind of struggling with this answer because I don't want to it all sound like I'm justifying or defending with the Bank's actions during that period. H But look, they came out of World War Two and they did change, and they played, as I said earlier, a leading role in the reconstruction

and redevelopment of Europe. They admitted their crimes and apologists for their crimes during the Holocaust, which does not make it right, but at least is you know, a small step toward making it right and serves also right. Didn't they write some big texts? Yeah? They did, and they, you know, like much of Germany, they and they've spent the better part of the past century apologizing and trying

to make right the awful times that they committed. All right, fair enough, let's let's go from Jeffrey Epstein to genocide to something a little lighter, Let's talk about Russian money laundering and Deutsche Bank's role. Tell us about the pair trade situation that Deutsche Bank came up with that allowed Russian oligarchs to move rubles into dollars pretty seamlessly. Yeah, well,

just even before we explained that. And I think it's worth noting that Deutsche Bank for basically ever, for on most of its existence, has been making a lot of money by providing banking services in Russia that most of the rest of the world, for one reason or another did not see, did not see his particularly good idea. And so you know, they initially were financing railroads for the czar, and that shifted to serving the communist government.

They're basically NonStop, with the brief exception of World War two and um, and then starting in the early two thousand, as this new class of oligarchs emerged, Deotsche Bank was one of the only Western banks operating in Russia and basically assisting these Kremlin linked oligarchs in moving their money out of out of Eastern Europe and into the Western financial system, whether that was into uh the Eurozone or into the US financial system, and the starts. Describe those

mirror trades. Describe those mirror trades because it's a fascinating methodology and it's kind of shocking. No, none of the regulators picked it up very quickly. Yes, I think the simplest way to describe these trades is that they're called mirror trades because there are two trades that take place basically simultaneously that are reverse images to each other. So uh, in Russia you would have an oligarch, and the result of those trades is that money goes from being in

roubles to being in most likely euros. And so one example, a Russian will basically purchase a bunch of blue shift shares of a company, using rubles to acquire the shares, and then, in a separate transaction that takes place simultaneously with the same amount, a shell company head quartered in maybe some place like Cyprus, which is part of the Eurozone but very lately regulated, will sell the same number of shares that were just bought by the Russian, and

the result is that the Russian has spent his rubles buying shares, and the Russian who controls the shell company has also liquidated those shares in Cyprus and raised the same amount of money in euros. And so just like that, with the help of Deutschebek moving the money back and forth between the Russian and these shell companies, the just like that, you've got ruble. You once at rubles, they're now euros and your money is in the European financial system.

So it's fairly and it's much more complicated than I just said that. The nuts and both of it are actually pretty simple and uh kind of almost elegant in

their simplicity, I think. And again, a normal bank with proper checks and balances and internal controls in good computer systems would have spotted this pretty quickly because they would have seen that there are these two simultaneous transactions offen quite large transactions taking place instantly at the at the exact same time, in the exact same amounts, and involving these shell companies linked to Russians. And you know that would raise a lot of red flags at a normal,

healthy financial institution, don't you. Bank was not a normal, healthy financial institution. So so let's talk a little bit about your writing process. In the book, we could talk more about oligarchs and bed actor states and and how Deutsche Bank UM laundered money for them, But I think people get the sense we all would have been better off if Deutsche Bank would have been given a corporate death penalty after World War Two. That was a mistake

and I don't want to dwell on that. Let talking said about your writing about the book, there's an incredible amount of detail and character development in the book, UM, including some of my the most interesting people UM within the book are really fleshed out. How did you go about writing this and how much research did you put into figuring out who this huge cast of characters were and how they all interacted with each other. It's quite a giant puzzle. Yeah. I mean the bottom line is

I just read a lot, and I read. I think I did my best to read every single thing that had been written about Deutsche Bank from the midies to the present day. And so that was in extraordinary amount of background research, not just in the media, but in academic papers, in government documents, in laws of things like that.

And and then I just set out to meet as many people as I could who have been involved for it, worked for the bank, and that ranged from people and then I started with people who have been at a pretty high level inside the bank. And you know, almost none of those people are still working there. And one of the extraordinary things like Deutsche Bank, more than any other bank I've ever encountered in my career, is that almost everyone who leaves Deutsche Bank does so with a

very bitter taste in their mouths. And so a lot of those people were willing to talk to me based on the basically because they could. They knew that everyone else would have their knives out, and they wanted to protect themselves and tell their side of the story preemptively. And so for journalists that is just a very nice phenomenon to be experiencing, because everyone is eager to tell their side of the story because they assume everyone else

is going to be talking. And so and there was you know, and you just sit down with these people over drinks or dinner or breakfast, and you you know, you just asked them to tell you stories. And the

stories were extraordinary. And a lot of these are very smart people, even though a lot of them made very serious mistakes, and they've did memories and allow of them these documents that they contempor any documents that they've kept, and so, yeah, and I spent I don't know, many many many hours interviewing and spending time with and scores of these people. So let's talk about probably the only decent character in the whole book, Bill brock Smith. Am

I pronouncing his last name right? Bro Smith? Yeah? Bro Smith? So he is the person who essentially invented the form of derivatives and derivative trading that Deutsche Bank built all its initial wealth on, and he understood risk management better

than anybody else in the bank. And even after he leaves the bank, he stays on as a consultants and continues to internalize all of the bad behavior and feels guilt for everything that he's not doing others are doing and profiting on, and ultimately commits suicide for the sins of others. How was it researching him? And tell us about his son Val? How much he helped in the entire process. You you wrote a big piece on Val

at the New York Times, Right, Yeah, that's right? And Val and Val was indispensable to telling his father's story.

And he was extremely helpful in introducing me, or not really introducing, but pointing me towards a lot of the people his dad had worked with and shortly after his father's death in two thousand fourteen, Val gained access to his father's personal email accounts, which for a variety of Bill Brokesman had been using for a lot of his Deutsche Bank work and so and Val shared, uh, you know, hundreds of not thousands of those emails and documents from those email in the AHO accounts with me, And so

that provides And that's another way, by the way that I was able to recreate some dialogue and uh, you know, it's just you know, it was vital um. Val is a complicated person, as are we all, and um, you know, it's been a difficult relationship with him over the years, but and he he was very eager to, as you like to say, cultivate his father's legacy, and and it

was a legacy worth cultivating. And Bill, as you said, was kind of a legendary risk manager and legendary derived with his expert I think more important than either of those things, though, is that he was a man who had a conscience and had a sense of ethics and was not afraid to stick with those and really stand up for them when challenge colleagues. And Bink was very short on people with strong ethical and moral compasses and brokenly stood out. As you know, he was the conscience

of the bank in a lot of ways. That's the way a lot of his colleagues described him to me as and and he said he internalized a lot of the bank's problems. And so it ends up being kind of a tragedy in a lot of ways. Um very much so that I I'm up to the part in the book where so Val is the adopted steps on Um. Bill leaves seven suicide notes for various people, including one for Val, who's kind of been a near duell, a

little bit of a junkie and a musician. But he finds a new purpose in life trying to clear his father's name and through an organization guardians a piece, he learns how to become a hacker, a little bit, set up WiFi packet sniffing, and literally drives from California New York in order to to set up a packet sniffing sting to get his step mom's email passwords. They're they're somewhat estranged. He's on a a month allowance but never

inherited any real money after his father died. Tell Us what Val discovers in his mother's email account, Well, there are two kind of main categories of sting, and one is that he discovers all of these documents that pertained at Deutsche Bank's efforts to essentially cover up some of

the reasons that Bill brooke Smith had committed suicide. And and he finds that there is a bank the bank had conducted this kind of very uh slipshod internal review of the circumstances of his death and some other stuff as well. Um, and then the secondly he finds all these suicide notes and you know all but I think

two of them are too family members. One is to a family friend, and but the final one is to the bank CEO at the time, onto Chain, and it lays out in just heartbreaking detail what Bill Brookesmith blamed himself for. And I don't I want to spoil that for everyone, but there's, um, it really it's it's to me, it's really heartbreaking. It's also a testament to Val having worked really hard to unearthed this stuff without really knowing

what the payoff was going to be. And and you know, motivated by this stew of really complicated personal emotional, familial Uh, factors that are you know, any of us can probably kind of a madsine And uh, you know, Val, as you said, it, has this terrible thonging out with his family. Frankly had a terrible thong out with me too. And you know, I think it is just a reminder that whistleblowers take many different shapes, takes many different forms, and

Val is not a conventional whistleblower. But this the service that he has provided to the public by exposing all the Deutsche Bank stuff, I think is really undeniable and laudible. Yeah, no doubt about that. You know, I'm reminded of what he discovers in his stepdad's suicide note to him, essentially saying, hey, you're the only one worthy of carrying on the approximate name, and I'm proud of you as my son. I wonder if that just delayed Valsworth's fears and gave him some

motivation to do all the things he did. A lot of what we now know about Deutsche Bank and how they hit giant losses during O eight oh nine, and how they lied to regulators, none of that would have come out the FED the Federal Reserve letter warning that they were in in trouble. None of that would have come out without Val brox Smith. Is that Is that a fair statement? Yeah? I think, And there was a

tremendous amount that fairness. There were a lot of other whistleblowers to be like, really helpful to me and to other journalists and to regulators over the year. So I don't want to give Val all the credit for that, but there's no look, Val has been. Our ability to understand Deutsche Bank's very ugly inner workings is you know, in large part due to VAL's efforts to get the stuff in the public domain. And you know, everyone can question VAL's character and his motives and things like that,

and I frankly have from time to time myself. And but again there's really no denying the public service that he has provided. So you mentioned you had a falling out with him, Um, tell us what you can about it. What happens. Is he happy with the book? Is he unhappy? He doesn't come across as a bad guy. He comes across as kind of, you know, a person having a hard time finding his place in the world and and a little bit of a junkie. But he does perform a service. What what is going on with him? Um?

And how does he um? I think he. I mean, I'm a little way of putting words in his mouth, but my understanding that he is very he The book accurately portrays his father's life and work, which is Look, from my perspective, that is something that I feel really good about it. I think he has had a lot of trouble, uh reading my descriptions of him, and I think, give you know, Val has been I got I start getting to know about just a few days after his father's death. And so I've been with him on this

journey from early until now. And you know, it's not like I know him that well, but I know him pretty well. I was talking to him every day, multiple times a day for the better part of four years and or five years. And look, it's painful, I think, to read difficult things about yourself in the New York Times or in a book. And there are difficult things about him in the book, like he's a complicated, flawed person,

as are we all. But he he, as you said, he struggled with some emotional issues themselves and abuse issues. And I think it's hard for anyone to read those things. So we've had, I mean me, it would be an understatement for me to describe ballanting angry with me. He is like furious with me. I think he would love to destroy me probably. Uh, And it which is very you know, that's not a diffeeling for me to have.

And it's I guess kind of just like a occupational hazard as a journalist when you get to know a source as well as this, and uh, it takes the relationship can take on tones of a friendship when in reality is not a friendship. Right, he used a source in the subject of what I'm writing about, and I'm a journalist, and uh, but I think it is very Look, I've learned a lot about myself and about like my own tradecraft in over the years working with l and

I've certainly made some mistakes along the way. And uh so I don't want to make it sound like I don't know there's I'm struggling a little bit here again,

because right, that's challenging. But there's no avoiding that based on the book, what he found, the document prove, the emails, the all of the things he found completely changes not just the picture of at your bank, but it paints really a full portrait of the depth of depravity that was going on at the bank, UM during those years, and if nothing else, I hope he's pleased that he helped you get to a deep, dark, ugly truth about

what was once one of the biggest banks in the world. Well, I feel similarly, and hopefully he'll listen to this, and you know he pleased to hear that that you're reading him the story as well. Well, Well, it's a fascinating story and really well told. Um. Before we get to our favorite questions, I just have to talk a little bit about your previous book, which is somewhat similar in

its scope of dealing with finance characters and illegality and criminality. UM. And that was the Spider Network, all about the law I bore manipulation, and that pre dates, um, your contact with val By by a year. You were contacted by a currency trader named Tom Hayes, who really was a savant when it came to this and kinda took the blame for what a lot of other people did. Tell us a little bit about your relationship with yet another damaged person in the world of finance, Tom Hayes. How

did how did that come about? Well, I got to know Tom Hayes starting in I guess early, so this was about a year before I started my relationship with Val. And Hayes was been for many years a very successful interest rate trader at a succession of good thanks and it was criminally charged in the US and arrested in the UK at the end of for being the alleged

mastermind of the labor manipulation scandal. And I tried to get in touch with Tom very shortly after he was arrested, and you know, I'm sure I was among many journalists trying to do that, and I ultimately found a way in through a friend of his and a business school classmate of his who I spent some time with, and she eventually introduced me. I guess see, actually gave Tom my cell phone number and uh early, and I didn't

really expect to hear from him. But one night I was sitting on the sofa in my apartment in London and got a text from an unknown number that said, I'm willing to meet with you, but I need to be sure I can trust you. This goes much much higher than anyone realizes, even the Department of Justice. And so that was the start of a secret Year's man relationship I had at Hayes that I eventually he agreed to make it public UM after his trial in twenty

of team UM. So I mean that was he is mildly autistic, he's got as springers and he is someone who has It was just like a fascinating relations to form me because he is uh, he's a genius UM. But he's also in some wayers that's completely inept and had really struggled. He he doesn't I couldn't even say that he's he is uh. You know, he doesn't communicate like people normally do in my my experience to be on the people on Wall Street and he's on the spectrum.

He has problems reading social cues. He's problems understanding when people are lying to him. Easy to set up a guy like that to be the full guy. I assume by now he's out of prison, what's he doing with his life these days? No, he's still I mean, he has gone from being in a maximum security prison to being in Uh's essentially an open prison, so he can uh is some rights to be able to go out into um like society and have a have a job. But he still has to go back to prison at night.

And um, so he I mean, he is by far the person who has you know, taken the most painful personal consequences of I think anyone in the banking industry since the financial crisis. Um. And he is just about the least likely person he would think to have that role.

And again he is, you know, he's someone who I think had trouble detecting some shades of gray and it didn't see that libra manipulation was outright illegal, and it was kind of incentivized and encouraged by his superiors and his colleagues to do this and it didn't and that which is not a thing he's without blame. I mean, he's certainly like deserved lame. I think he, in his heart of hearts, knew what he was doing and was

not quite right. U. But the notion that this is the man who he received initially a fourteen year prisons um and you know that's one of his supervisors. Everybody else who was making the same were managing nobody forget going to prison. No one even really got into any trouble. Yeah, I mean a few people lost their jobs, but as is often the case in the finance industry, where institutional memories are very short. A lot of those people got rehired and re entered the workforce. And you know there

have been since then. So he was tried and convicted in fifteen, and over the past five years there have been a a smattering of other traders who have been UM convicted and or served some time in jail, and UH, none with sentences of anything like the magnetis of what has got and um And I think since I wrote that book, the public perspective, especially in the UK, which is where allow Us took place, has really shifted towards initially viewing Hayes as this evil mastermind, which is the

case the government made about him, to viewing him at this point largely as a scapegoat who, while guess he did some things wrong, has become the single, the sole person who is paying a price for an entire institution, for an entire industry's grade and Moufie's, which obviously is

not fair. So so, between the research and writing of the two books, between Dark Towers and the Spider Network, what surprised you that was parallel between uh, these two areas of wanton criminality and what just surprised you in general as you were doing your research. Well, I mean what surprised me most in the research process for both books was and I'm not sure that this this is the answer you're looking for, but and it really it was almost it was just a fascinating journey from getting to

know these two people in these two books. So and the one Aunt Hays, who is unlike any person I've ever met in my life, and then val Broke Smith in the second book, who you know is also unlike anyone I've ever met in my life. And those are certainly, without any question or competition, the longest running and most intemps and you know, stressful source relationships I've ever had.

Um In fact, they're probably too the most intense stressful relationships I've ever had period um and and you know, you learn a lot about yourself when you're when you're spending years interacting with complicated people and trying to figure out how to relate to them and communicate effectively with them,

and trying to understand the world through their eyes. I think it's one of the things I love most about journalism and this type of storytelling is that it expands, it's for me, I kind of expand did my way of thinking about the range of emotions that people have. It's really helped me, I think the or learn a lot more about empathy and um. So it's been from just a personal Samplin really fascinating and I think positive. Let me ask you a quick question here that is

forward looking. You've covered some of the malfeasance around the Cares Act. You wrote a story about hospitals getting bailouts, executives taking big bonuses and then laying off people even though they're not supposed to. What do you think the book about the Cares Act malfeasance is going to be five years from now. Is has some of the criminality around the government bailout risen to the same levels as Libor and Deutsche Bank? Or is this really just your

run of the mill malfeasance. Well under the third answers,

I don't know. Um. The longer answer is that, based on what I've seen at this point with the Kars Act, it's less about mouth seasons and the criminality and much more about sloppiness and with like a side helping of greed, and there's the bail The Cares Act in general was obviously rushed through UH Congress and has been implemented in this really tasty way on the like, which sounds bad except when you think about the context, which is that

the Trump administration was understandably very desperate to get this money out into the economy as quickly as possible. And I think there's a business made that they were willing to take some heat for, you know, some recipients getting money that they really didn't deserve. Some recipients use them money, and in appropriate way, it's for the fate of broadly

getting trillions of dollars into the economy very quickly. And so I think the journalists and media plays a very important role in accountability here in terms of writing about

missus of money or fraud and things like that. But I also think it's important not to let those examples of wrongdoing or UH sloppiness or an aptitude corrode all faith in this program, or to really question the effectiveness or utility of this program overall, because there, I mean, God, imagine the shape behind me would be in right now, those brillions of dollars will not being put into the autonomy.

And don't don't let the tell web the dog in other words, Yeah, But on the other hand, this story is not fully told. The reporting will become much clearer as time passes. And you know, it's entirely possible there is some serious criminality and malfeasons going on in a Broadway that we, or at least I am not currently aware of. And if that's the case, man, what a story that will be. Yeah, to say the least. All right,

let's jump to our speed round. These are our favorite questions we ask all our guests, and and this is the part of the conversation that we're going to keep it fast and short. And let's start with what are you streaming these days? Give us your favorite Netflix, Amazon shows or podcasts you're listening to. I listened to The Daily, which is a New York Times podcast just about every day.

I just listened to a Window of Chains, which is fantastic. Uh, Netflix, the best thing, the best show I've watched in a long time as host, which I love. Tell us about your mentors who helped guide your career in journalism. I'm

going back to college. I had a great professor, Jack Pitney, who really taught me more than anyone else about writing well and keeping things and active voice, not using ad firms, uh, keeping sentences shortened sweet in journalism, and I think the best mentor I've had is Bruce Orwall Is, a legendary reporter and editor at The Wall Streets turn All who coached me through my relationship with Tom Hayes and to some extent Thal Brooke Smith as well. And he's now

the global sports editor at the Journal. And he's just he's an extraordinary person and journalist. And he's been a mentor two dozens and dozens of really the journalists over the years. Fascinating. Tell us about some of your favorite books. What are you reading now and what are some of your all time favorites. Um. I am right now reading straight Man, which is a novel um and got it. Cannot remember who it's by the but it's fantastic. It's

not new. UM. I recently read Hidden Valley Road, which I think everyone is probably reading, which is also fantastic. But UM, I think right now my favorite all time book is a little more obscur it's called or I'll Dress You in Morning and morning as in like reason, not morning as in the time of day. And it's non fiction. Yeah, morning with you and It was wrinking, I believe, in the late sixties by a pair of journalists. Uh. And it's about bull fighting in Spain, and it is

lyrical and fascinating. It it was just a wonderful, wonderful book. And what sort of advice would you give to a recent college graduate who is thinking about a career in either journalism or long form investigative journalism. I think, I mean, there's so much advice I could give to me. The advice that I wish I had gotten when I was

just starting is starts. You want to be as aggressive and fast moving and ambitious as you can be, but make sure if you're finding a place to start working where you have a good editor and you have a good mentor, and where when you make mistakes and when you fail, you're not going to do so in such a spectacular way that it chapterdizes your entire career. And because you will make mistakes and you will fail, and you want to do that in kind of a obtained

safe environment. And then a related question, I guess is what do you know about the world of journalism today that you wish you knew when you were first getting starting out? Yeah, I mean that's that everyone makes mistakes and that those mistakes can be really brave if they're not done. And you know, you know, you don't want to be like start rock climbing without ropes, and uh, it's the same with journalism, like you need to respect what you don't know and respect what you can learn

from others. And so I think there's a temptation I know I certainly faced this myself where you kind of just you think you know everything when you're twenty two years old and you want to go off and just prove yourselves and you think you can do it, and the reality is maybe you can do it, but you you will do it so much better and in a much more productive way if you're doing it with someone who's going to make you better. And so that often means, uh,

not get going for the goal and everything. You need to kind of check your ambitions a little bit and find an organization and individuals you can work with that what really that you will learn a lot from. Thanks David for being so generous with your time. If you enjoy this conversation, check out all our previous such interviews. We have over three hundred recorded over the past six years. You can find them at iTunes, Spotify, Google Podcasts, ditch

your overcast wherever finer podcasts are sold. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. You can check out my weekly column on Bloomberg dot com slash Opinion. Sign up for my daily reads at rid Halts dot com. Be sure and give the show a review at Apple iTunes. You can follow me on Twitter at rid Haltz. I would be remiss if I did not thank the crack staff that helps us put this conversation together each week. Tim

Harrow is my audio engineer, Michael Boyle's my producer. Atika val Bron is our project manager. Michael Batnick is my head of research. I'm Barry rid Holts. You've been listening to Master's of Business on Bloomberg Radio.