Deutsche Bank's Russia business reels amid money-laundering charges

By bne IntelliNews September 15, 2015

Jason Corcoran in Moscow -


The Russian operations of Deutsche Bank, the biggest foreign investment bank in the country, are imploding and may leave a shell of a business following allegations its bankers laundered money on behalf of its clients.

One insider said Germany's biggest lender may can over 1,000 people by shuttering its investment banking, private banking and wealth management in Russia, and moving its huge IT centre to another country if the charges are made to stick. All that would remain would be a couple of hundred employees along with the unsexy global transaction business, which provides cash management, trade finance and custody services for corporates.

"Frankfurt is reeling over these investigations," a source close to Deutsche Bank told bne IntelliNews. "There was a nuclear option a few months ago to shut most of their Russia operations, but it's now looking increasingly likely unless they can magically finesse some deal with all these regulators."

Marietta Nikolaeva, a Moscow spokeswoman for the bank, declined to comment on how any plans should the lender's employees be found guilty of money laundering and taking bribes. "No decision has been taken," she said by phone on September 14.

In another blow, Joerg Bongartz, the bank's management board chairman in Moscow and head of global transaction banking in Russia, is leaving for Frankfurt after nine years. The bank insisted his departure is unconnected, but it does leave the Moscow business increasingly rudderless at a critical time as sanctions, a deepening recession and this trading scandal take their toll.

Slow burner

The touchpaper for the current crisis may have been lit as long ago as 2003 when Deutsche Bank decided to buy 40% of a local broker UFG for $70mn rather than try to continue growing organically. They bought the remaining 60% from US banker Charlie Ryan and former Yeltsin minister Boris Fedorov in 2006 for the mouth-watering sum of $600mn.
The two-step deal gave Deutsche Bank the platform it coveted and within a year it established an unassailable lead in domestic equity and debt capital market league tables. What it also inherited from UFG was a very un-Germanic free-wheeling and cavalier business style.

Over the past decade, many of the UFG senior managers have departed. Indeed, state-controlled VTB Bank completed a daring dawn raid on its best talent in 2008 when it lured more than 100 staff to its new investment banking start-up. The move had been orchestrated by VTB boss Andrey Kostin in cahoots with Yuri Soloviev, Deutsche Bank deputy chairman who felt snubbed after he was overlooked as Charlie Ryan's replacement.

Deutsche Bank tried to grin and bear it, arguing unconvincingly it could work with VTB Capital as a partner on deals. Kostin publicly poked fun at Josef Ackermann, the Deutsche Bank CEO who led the bank for 10 years up to 2012 and had assiduously and earnestly built up close links with the Kremlin and its state companies.

Loyal man to patsy

One of the few prominent Deutsche Bank/UFG executives who didn't take VTB's shilling was Tim Wiswell, an American who had been with UFG since 2003. Wiswell was rewarded for his loyalty in late 2008 when he was appointed co-head of equity sales and trading. Incidentally, Wiswell upbraided this reporter for constantly citing VTB's poaching of his colleagues. 

Wiswell, who married a Russian in 2010 in a glamorous Newport, Rhode Island wedding, is at the centre of a probe into possible money laundering involving about $6bn of transactions over more than four years.  

Regulators and the bank itself are examining so-called "mirror-trades" whereby Russian clients might have bought stocks in rubles via Deutsche Bank, and simultaneously made trades through London in which the bank purchased the same stocks at similar amounts in US dollars. Such transactions could have enabled Russians to move money offshore without telling the authorities.

A Deutsche Bank executive is believed to have been initially approached by a client involved in real estate in St Petersburg. These trades carried on for years until an employee in middle office started to notice and tried to flag them up the chain. An internal fight later spilled out between this individual and the front office.

The employee, who was later cut from his role, was unhappy with his exit and settlement from Deutsche Bank and threatened to go to British regulators. He followed through on his threat. Some insiders believe Wiswell is just a scapegoat and a "patsy" who was thrown under a bus when the regulators were alerted. The fact he is American also "plays very well for the Russian press", said one executive close to the bank.

Nick Harwood, a South African banker then working at UBS, was approached previously by the same St Petersburg company about taking on the trade, according to two people familiar with the matter. Harwood, who now works in a senior role at Sberbank CIB in Moscow, turned them down flatly. Harwood declined to comment by email.

Wiswell, a clean-cut looking sportsman who loves sailing, was relieved of his duties in August by Deutsche after a four-month suspension. He has left Russia and is now believed to be living in a stunning 252-square-metre property set in eight hectares in Essex, Conneticut. Wiswell has previously declined to comment and could again not be reached on the latest developments. He had initially been suspended in April along with more junior colleagues Dina Maksutova and Georgy Buznik.

Such is the paranoia within the bank that the probe into potential money laundering is said to have been extended to other asset classes such as fixed income.

What is certain is that Deutsche Bank doesn't have much appetite for Russian risk in this current environment, where Russian clients are frozen out of the capital markets.

Damaged, under siege

Deutsche Bank's new coCEO John Cryan said in a July memo that the bank "has been damaged by instances of serious misconduct".More widely, the bank's current employees and alumni believe it is imploding under siege from the various regulatory probes in different jurisdictions. One US-based banker said morale was in pieces and cited a recent  incident when its head of Asian equities Robert Ebert was arrrested in June after crashing his Ferrari and killing a security guard in Hong Kong.

Another banker said former co-CEO Anshu Jain had created a ''Game of Thrones Fiefdoms'' across the bank with "tribes from Morgan Stanley, Bankers Trust and Morgan Grenfell" all out to compete and destroy one another.

Juergen Fitschmann, Jain's former co-head who surprisingly retains his role until May, 2016, has responsibility for Russia, but has never shown the same affection or devotion for the country as Ackermann. He was due to participate at the St Petersburg Economic Forum last year but never turned up, as Wall Street turned its nose up at President Vladimir Putin's Davos-lite showcase.

To make matters worse for the top brass in Frankfurt, a former banker from UFG’s heyday is planning to soon publish a lurid and candid book being dubbed as a cross between the "Wolf of Wall Street" and "Liar's Poker". The author, who is currently negotiating with a publishers, asked not to be named given the bank's current toxic reputation.

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