How Deutsche Bank got its groove back

0:02Good morning from the Financial Times. Today is Wednesday, June 3rd. And this is your FT News Briefing. The White House is trying to keep tabs on AI models. And the conviction of a famous short seller could change how people invest. Plus, sure, Deutsche Bank has had its problems, but the German lender has turned things around. There are still some reputational issues that are ongoing, but I think people within the bank hope they are largely past that and that this new strategy will bear fruit. I'm Mark Filippino, and here's the news you need to start your day.

0:43U.S. President Donald Trump signed an executive order on AI yesterday. It creates a voluntary framework that allows the government to vet AI models. The move comes after officials raised concerns about the security risks posed by Frontier AI platforms, most recently Anthropics Mythos. The signed order asks AI labs to submit new models for security review up to 30 days before they are released to the public. An earlier draft of the order proposed a longer 90-day period. But Trump pulled that version abruptly last month because of warnings within his administration that tighter oversight could hamper the growth of leading AI labs.

1:21Regulation of the technology has become a thorny issue for the president. Some of his allies, including former White House chief strategist Steve Bannon, have called for the government to take control of leading AI models.

1:39A U.S. criminal conviction could have big consequences for how investors, like short sellers, do their bidding. On Monday, a jury in Los Angeles found Andrew Left guilty of securities fraud. He's the founder of the online investment newsletter Citron Research. Federal prosecutors accused Left of making at least$16 million in, quote, a long-running market manipulation scheme. Left, though, maintains he was simply sharing opinions with his followers. He even said his conviction signaled a sad day for free speech. Kay Wiggins is the FT's U.S. legal correspondent. She's here to tell us how the Andrew Left case could shake up investing.

2:16Hi, Kay. Hi, Mark. So tell me a little bit more about Andrew Left. What's his deal? Yeah, so Andrew Left is among the most well-known short sellers in the US. By short sellers, that's somebody who bets against companies. He is a prolific poster on social media, particularly on X. He has been a regular on lots of business TV networks. He built credibility more than a decade ago when he accused Valiant, which is a pharmaceutical company, of accounting irregularities. And those allegations were eventually confirmed. And he has since become a prominent figure who speaks publicly about the positions that he's taking in stocks.

2:54So, Kay, why did prosecutors feel like left was manipulating his followers? So what they have accused him of doing is basically they said that he would take a position in a stock, whether that's a long position, so betting that the share price would rise, or whether that's a short position, so betting that the price would fall. Either way, they say he would take a position in a stock and then he would post about that position. And then he would very, very quickly exit that position at a profit. So they say that he knew that he had this influence. He knew that by going public and talking about his position, he would be able to move the market.

3:30And then as soon as he had done that, he would very quickly sell his position and make money from doing so. Now, is it weird for traders and especially short sellers like Left to speak publicly about their positions? I thought that was kind of part of their MO. Well, that's what's really interesting about this case. And that's why it has sort of potentially huge implications for other investors who take similar positions and who trade in similar ways. The prosecutors in the Andrew Left case were saying this was a very short term thing. He would take a position, post about it, and then immediately, sometimes within minutes or hours, he would take steps to get out of that position.

4:09But this raises a really huge question because his argument is, I didn't believe that I was obliged to hold on to my positions for a fixed period of time after I had gone public and said that I thought the company was great or that I thought the company was bad. And so that's what's got other hedge funds kind of scratching their heads and saying, hang on a minute, what are the rules here? Are we allowed to trade after we've sort of said what our position is? The whole thing is a bit of a gray area and that's what's causing concern. Yeah. And like I said, left has come out and said that this has become a case against free speech.

4:44And I gather that there are people on Wall Street who agree with him. Yeah, I spoke to Andrew Left quite soon after the verdict was announced, and he thinks that he's being penalized for his honest opinions on companies. My colleagues and I have been talking to investors, including short sellers. The things that they're saying to us include, you know, we're all trying to do the right thing. None of us are trying to do anything illegal, but what exactly was the problem? A lot of them are saying this could have a chilling effect on people's trading and particularly on people's public commentary around their trading.

5:13Kay Wiggins covers legal affairs in the US. Thanks so much, Kay. Thanks, Mark.

5:23Gold has leapfrogged U.S. government bonds to become the world's top reserve asset. That's according to a European Central Bank report out yesterday. Central banks have been relentlessly buying the yellow stuff over the past several years, and there are two big reasons for that. One is geopolitical tensions. A lot of countries want an alternative to the U.S. dollar, which is the world's de facto reserve currency, and even more so since 2022. Washington at the time froze Russia's dollar reserves because of Moscow's full-scale invasion of Ukraine. And the second reason for the shift is gold's skyrocketing value.

6:00It hit a record high in January and more than doubled over the past three years.

6:11Not too long ago, Deutsche Bank was known as the sick bank of Europe. But it looks like Germany's biggest lender is turning the ship around. Deutsche Bank reported record profits last year and investors are starting to believe in it again. Here to explain how Deutsche Bank pulled off this comeback is the FT's European banking correspondent, Simon Foy. Hey, Simon. Hi, Mike. Thanks for having me on. Good to have you on. So, you know, before we get into this turnaround, give me a refresher on how Deutsche Bank got this bad reputation in the first place. Sure. So you have to go back to sort of the mid to late 90s where sort of before that, Deutsche was very much a boring, prosaic German bank, but it made an acquisition in the late 90s that helped basically to transform it from this German bank into what became sort of a European bank that took on Wall Street rivals.

7:01And by 2007, pre-crisis, they were briefly the world's biggest bank by assets, but it was sort of the regulatory clampdown that followed the crisis, hit Deutsche harder than many peers some rules that forced it to raise a lot of extra capital. And there was also a litany of sort of litigation costs stemming from past misbehaviors when it was in that sort of pre-crisis boom. So that's basically what took it to about 2018, 2019, when Christian Saving, the current CEO, took over and basically reset Deutsche's strategy. Yeah, let's talk about that reset. What did the bank do to turn things around?

7:37So in many respects, his strategy was pretty simple, where he wanted to rein in this bloated an investment bank that was made for a pre-crisis era, not making very much money at the time, and sort of return Deutsche to its roots in European corporate banking and repair its reputation that had really sort of gone downhill in the years preceding him taking over. And what's interesting about saving is that he came very much from the risk management side of the bank. He was not this swashbuckling investment banker like many of his predecessors were, and he changed the culture quite significantly in that he was focusing not so much on this win at all cost mentality and sort of maximizing profits, but reining some of Deutsche's excesses in and bringing it back to basics.

8:23Is it right to call it a boring but safe approach? I think so. Deutsche might dispute that, but it's certainly a safer approach to what they were doing beforehand. I think it is now becoming a much more stable bank. And if you look at sort of his strategy, what it is focusing on now for the next three years, I think, was the time horizon is basically growing its corporate bank, in particular in Germany and Europe. And that sort of business is a lot less risky and a lot less capital intensive than some investment banking activities. And as you have a lot of fiscal stimulus in Europe and in Germany at the moment, as governments look to build infrastructure, invest more in defense.

9:04So Deutsche is really trying to get in on that and is hoping it will be able to capitalize on that. Simon, what's next for Deutsche? I mean, will this turn around last or are there other obstacles that are standing in the bank's way? I think there were a few things that still rear the head sort of from the bad days for Deutsche when it was deemed to be the Bank of Europe where the recently released Epstein files, sort of that Epstein was a big Deutsche client for a while. So there are still some reputational issues that are ongoing. But I think people within the bank hope they are largely past that and that this new strategy will bear fruit.

9:41But if you look at the targets they're setting, So the profitability targets are still quite a bit weaker than some other European peers. There are other banks like Unicredit in Italy or Santander in Spain who are much more profitable and they are expanding and sort of pursuing bigger deals. So we will see. I think the consensus is that they will probably likely hit these targets by 2028, but that would still, I suppose, keep them in the middle of the pack of European banks. Simon Foy is the FT's European banking correspondent. Thanks so much, Simon. Thanks, Mark.

10:18Before we go, as you know already, the U.S.-Iran war is affecting shipping through the Strait of Hormuz. And there's one tycoon that is absolutely fed up with it. His name is Evangelos Maranakis, and he's one of Greece's biggest ship owners. He says he'd rather pay a$200 ,000 toll per ship to pass through the Strait of Hormuz than put up with, quote, this hassle. The hassle being the fact that the waterway's effectively been shut since the war began in late February. Now, Maranakis has a pretty unusual take. Others across the industry say free transit through the street is necessary. They say if ship owners have to start paying a toll there, it could set a dangerous precedent for other shipping choke points too.

11:06You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News briefing. Check back tomorrow for the latest business news.

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