Published by EH.NET (April 2008)

Christopher Kobrak, Banking on Global Markets: Deutsche Bank and the United States, 1870 to the Present. New York: Cambridge University Press, 2007. xx + 484 pp. $45 (cloth), ISBN: 978-0-521-86325-4.

Reviewed for EH.NET by Richard Tilly, Institut f?r Wirtschafts- und Sozialgeschichte, University of M?nster.

When a group of private bankers founded the Deutsche Bank in 1870, their goal was to create an institution which would capture a larger share of Germany’s foreign short-term credit and payments business, then seen as “needlessly” dependent on British intermediaries. This dependence continued, but the bank proved able to exploit it profitably by establishing its own British intermediary, i.e. a London agency, which came to execute a sizeable share of the business. To the chagrin of the Deutsche Bank’s founders, however, their prot?g? by no means confined itself to the finance of foreign trade. Indeed, its growing domestic business transformed it into one of their most serious competitors.

Nevertheless, the bank’s foreign business, though overshadowed by the volume of domestic transactions, was important. Given its growing size ? by the early twentieth century the Deutsche Bank had become the world’s largest private bank ? it became a major player in international banking as well. The story Christopher Kobrak tells in this useful book is thus a welcome addition to the literature on banking history. Its focus is on the bank’s business activities in the United States from the 1870s to the present, a long period divided here into three parts: a kind of “golden age” which takes us to 1914, the war and interwar years to 1945, and Part Three bringing us into the present. This basically chronological structure is somewhat imbalanced. The first part is not only much longer than the other two; it is much more closely researched, an “inside story” based in large part on material found in the Deutsche Bank’s rich archival holdings (an observation which only partly applies to the second part and not at all to the last one). This review reflects the same imbalance.

Part One consists of a series of fascinating case studies of business finance involving railroads (e.g., the Northern Pacific), manufacturing companies (e.g., Edison General Electric), utilities, and a number of other projects. The approach is highly personalized, reflecting not simply the sources but also the crucial importance of personal networks of trust on which much of international banking has always been based. Well into the 1890s the key relationship linked Georg Siemens, a cousin of the famed inventor and the Deutsche Bank’s de facto leader, with Henry Villard, a German-born financial adventurer specialized in connecting American financial needs with German capital. Disappointments with Villard led to his replacement in 1893 by Edward Adams, an American banker, while Arthur Gwinner gradually assumed Siemens’ functions as head of the Deutsche Bank’s U.S. operations. The author describes the individual projects and the financial difficulties they raised with great clarity. My reading of these micro-studies left me with two general impressions. First, the cross-cultural differences in economic institutions (e.g., banking regulation) and behavior patterns (attitudes toward competition and cooperation) between German and American business repeatedly led to misunderstandings and communication difficulties. This was one reason behind the considerable risks the Deutsche Bank found itself taking on the Northern Pacific project. As the author notes, that project led the bank to reduce its own direct investment (risk exposure) and concentrate more on marketing U.S. securities in Germany; but communication problems ? and unexpected risk-taking ? persisted. Second, the Deutsche Bank’s “U.S. directors.” Siemens and Gwinner, both enjoyed considerable decision-making autonomy. Even when the risks just mentioned had become visibly threatening, the other directors seemed willing to accept their judgment. That might reflect the ability of strong executives to shape the bank’s development path, the bank’s ongoing commitment to its “internationalist” roots, or its willingness to take a fairly long-run position on its strategic investments, perhaps even all three of these. Since German foreign portfolio investment in the 1870-1913 period as a whole produced higher yields than comparable domestic securities, it is reasonable to assume that the Deutsche Bank’s U.S. investments were profitable as well. Kobrak argues, however, that conclusive proof is not available.

World War One radically changed the rules of the game ? and the story Kobrak has to tell in Part Two. His focus here is initially on protection of German investments in the U.S., then on salvaging and seeking recompense for expropriated assets, followed by a discussion of the intermediation and subsequent “buy-backs” of U.S. loans to Germany. He quite sensibly devotes almost no attention to the Deutsche Bank’s experience in the Nazi era, since there are alternative monographs on the subject (e.g. by Harold James). He does discuss one immediate consequence of that experience, however: the attempted “Americanization of German banking” that marked the 1945-52 period and which aimed at reducing the “power of the big banks” (such as the Deutsche Bank). The section closes with discussion of the rehabilitation of Hermann Josef Abs and his postwar role as the driving force behind the Deutsche Bank’s revival.

Part Three opens with continued emphasis on Abs’ leadership. Kobrak’s comments on Abs’ influence in postwar West German banking policy are uncontroversial. The suggestion that Abs was also responsible for a belated globalization of the Deutsche Bank’s business stance, however, seems to be based on little more than temporal coincidence. The rest of the story, in any case, has further strong leaders like Alfred Herrhausen, Hilmar Kopper and Rolf Breuer transforming the bank into an international institution, bench marks being acquisitions like the London investment bank Morgan Grenfell (1989) and, Rolf BreuerZs crowning achievement, Bankers Trust, which, in 1997, for the first time made the Deutsche Bank a truly major player in the United States.

Not all readers will find the author’s emphasis on strong leaders persuasive; and nor did I. This seems most obvious in Part Three, where Kobrak presents so little supplementary evidence on the bank’s problems and decision-making. That reflects the source problem alluded to at the beginning of this review. Strong leaders, moreover, can bring some disadvantages. Rolf Breuer, for example, is alleged to have cost the bank millions through careless remarks in the media, one concerning Bankers Trust, another concerning the media mogul Leo Kirch. Nevertheless, the excellent treatment of the 1870-1914 period alone makes the book a fine addition to German banking history.

Richard Tilly was Professor and Director of the Institut f?r Wirtschafts- und Sozialgeschichte at the University of M?nster from 1966 to 1998. His most recent publications are a textbook (together with Toni Pierenkemper), The German Economy during the Nineteenth Century (2004) and a German textbook on the history of money and credit. He is currently completing the history of a German entrepreneur (Willy H. Schlieker).