In the early morning of November 30, 1989, a convoy of black limousines left the sleepy town of Bad Homburg heading speedily towards the financial district of Frankfurt. It was a spectacle the citizens of this tiny yet wealthy town were used to.

Their neighbour, Alfred Herrnhausen, the awe-inspiring head of Deutsche Bank AG, was driven to work. Ahead of him and trailing him closely were the two cars with bodyguards, with Herrnhausen’s armoured Mercedes-Benz in the middle. They did not pay attention to the bicycle park­ed on the road for weeks already, which, on this day, carried a 7kg armour-piercing bomb.

Triggered by the interruption of an infrared beam, the sophisticated device ripped through the side door of the car, killing one of the most prominent representatives of German industry.

The murderers were never found but the crime had the clear signature of the RAF, a terror group on the fringes of the radical left. It not only marked the high watermark of extremist bloodshed in West Germany but was also a symbol for the enormous status of Germany’s biggest bank.

Today, after the upheavals of the financial crisis, Deutsche Bank, like so many other banks, is a mere shadow of its past glory and power, only just clinging to its inclusion in the DAX, the stock index of the country’s largest public companies.

Today, Deutsche Bank is one of the most unloved banking stocks worldwide. Its market capitalisation – hardly more than €13 billion – is a mere 20 per cent of its book value, the bank’s evaluation of all its assets as expressed in its balance sheet. Investors seem to assume that, either the account statements are incorrect, or the whole enterprise has no future.

Over the last 12 years, shares in Deutsche have collapsed from €112.22 to €6 – a loss of a staggering 95 per cent – hardly a suitable target for capitalist-devouring anarchists.

The institution was founded by expansionist Prussia in 1870, wishing to shed its financial de­pendence on the world’s monetary centre, the City of London. It followed German industry to the colonies, financed the Nazis, and stood at the core of Germany’s industrial resurrection after the war, augmented by stakebuilding in its manufacturing enterprises.

It was a quintessential German operation: cooperating with its customers rather than fleecing them, frugal and prudent – the banking equivalent of coalition politics. The seeds of its downfall were sown when Germany seem­ed too small for a behemoth with now international ambitions.

The CEOs (Vorstandssprecher) following Herrnhausen, Hilmar Kopper and Rolf-Ernst Breuer, who both had joined the bank as apprentices in the 1950s, wished to conquer the world. In 1990, the British investment bank Morgan Grenfell was acquired, and in 1998, Bankers Trust, one of the most respected universal banks on Wall Street.

All of a sudden, German burghers in white socks who spoke English only reluctantly, were eagerly imitating a banking culture that was as inherently alien to them as it was to their traditional, domestic customers. Those who tried to emulate the bank’s new spirit, like Daimler-Benz (also chaired by Breuer), failed swiftly and monumentally, as the disastrous acquisition of US carmaker Chrysler should prove.

Those who were weary felt in­creasingly snubbed by their bank. While bank ‘directors’ were once considered long-term friends of the family, a new type of manager appeared, trading away trust-filled and confidential credit relationships.

Very quickly, Deutsche evolv­ed into a finance powerhouse operating in every imaginable market: private banking, asset management, corporate banking, commodities trading, brokerage, trade finance, foreign exchange and money markets, derivatives, securitisation, IPOs, mergers and acquisitions, and, yes, it still did some retail banking and credit business.

Come to think of it, there is little left for banks to do nowadays

In almost all these markets, Deutsche’s employees managed to act fraudulently. Finding itself at the epicentre of the sub-prime crisis, it risked sanction violations, invited to tax fraud, partici­pated in bribery schemes, rejoiced in rate rigging, Forex swindles and outright fraud.

Deutsche Bank was admittedly not the only bank to engage in criminal shortcuts. Almost all the big banks were caught red-hand­ed, but Deutsche outdid them all with German thoroughness.

Nobody seemed to be in control, least of all the increasingly better-paid board members. For more than a decade, Deutsche Bank’s fines from financial regulators regu­larly exceeded its profits. Chivvied by fear of further punishment and panicking over its lack of control, the board decided to stifle, scale back, or sell operations that would be profitable and straightforward with other banks.

It frightfully refused to service scores of good clients while, at the same time acting as the bank used by shady financier and sex offender Jeffrey Eppstein and being the biggest creditor of Donald Trump. Impatient shareholders now started to change CEOs on a yearly basis, thereby adding to the confusion of direction and to the alienation of disgruntled employees.

The picture is dreary. Yet I wish to argue that the biggest threat to Deutsche, and to all universally acting banks for that matter, is its reliance on an outdated business model.

Economics students will learn in the first semester that banks manage the cardiovascular system of all economic endeavours. By taking deposits and lending at a profit, it is the banking system that is en­trusted with the creation of money.

In the aftermath of the recession, most banks, which ultimately had to rely on the taxpayer for survival, appeared too leveraged to survive another downturn. Capital ratios were too thin to absorb even minor losses in a meaningful way. Regulators all over the world did their best to make the banking system safer. Minimum capital ratios were in­creased, and all financial activities x-rayed for their inherent risks to be evaluated more stringently.

As a result, banks started to withdraw from traditionally pro­fitable businesses and decided to scale back all credit operations, which was the very reason for their existence. They stopped lending to each other, preferred sovereign paper to enterprise and parked their deposits with central banks, even at a loss. This helped to prop up their capital cushions but pushed credit business away from banks into less regulated areas of financial activity.

Today’s money lenders are asset managers, hedge funds, insurance companies, pension funds, peer-to-peer lenders and marketplace platforms. Traditionally, banks utilised millions of current account deposits and savings accounts for their main business – the extension of credit.

The current inversion of the yield curve, though, whereby longer-dated credit yields less than short-term money, has ruined the traditional modus operandi of banks. The moment this margin turned negative, it became impossible to profit from the margin between short-term deposits and long-term credit engagements.

This is an inescapable situation, as the costs of idle deposits parked at negative rates with the ECB can only be passed on to savers at the risk of deposits disappearing.  Es­sential money services offered by banks for half a millennium – like money transfers, currency exchange, deposit-taking and the extension of credit – are today bypassing banks at increasing speed. Internet companies provide these at lower cost and in real time.

Facebook, with its 2.7 billion customers, might fail to gain approval for its Libra cryptocurrency, but this will not stop others from succeeding. Even central banks have start­ed to think about the introduction of national cryptocurrencies and offering payment services for their populace.

Come to think of it, there is little left for banks to do nowadays. Even their credit card business – a refuge for unfettered profits – might be replaced by the likes of Alibaba, Amazon, Apple or social media. Underpinned by unprotected data, blockchain technology and artificial intelligence, they have a head start over traditional banks so long as the latter fail to bank on face-to-face trust, long-term relationships and impeccable confidentiality.

Based on the assumption that companies with a P/E of 7 and assets exceeding their market appreciation by 100 per cent are cheap, bank shares look like a buying opportunity today.

As a personal triumph of hope over reality, I recently invested in the Spanish bank Santander and French BNP. I am not sure if this was a sensible decision. I fear to soon end up with the same losses I had to suffer from Daimler Benz.

After more than 4,000 years, starting with grain credits in Babylonian times, the once proud story of banking might be nearing its end.

Andreas Weitzer is an independent journalist based in Malta. He reports on the economy, politics and finance. The purpose of his column is to broaden readers’ general financial knowledge and it should not be interpreted as presenting investment advice or advice on the buying and selling of financial products.

andreas.weitzer@timesofmalta.com