Bank and HistoryHistorical Review

No. 17 September 2008

Returning to the international capital market: the second step in 1958West Germany developed from a capital-seeking to a capital-exporting country afteronly few years into the period known as the“economic miracle”: the need for foreign capi-tal for reconstruction was no longer in theforeground, but rather the search for invest-ment possibilities for Germany’s domesticcapital. In light of the growing surpluses inGermany’s balance of trade and the resultingrisk of inflation, the German Federal Govern-ment promoted the export of private capitalabroad in the late 1950s. It liberalized cross-border transfers of capital, discontinued themonitoring of foreign debtors’ raising ofcapital and provided foreign bonds with taxprivileges. Starting in 1956, Germans couldacquire foreign securities without any restric-tions, and as from 1957, foreign business in-vestments were freed from all approval re-quirements. The Federal Republic of Ger-many was one of the few countries that hadno official approval requirements and no offi-cial limit for the issuing of foreign bonds.Only a foreign exchange permit had to beobtained from Germany’s Bundesbank. Thefull convertibility of the D-Mark in 1958 open-ed up Germany’s capital markets definitivelyfor international bonds.As early as 1957, Deutsche Bank participat-ed in the issue of a dollar-denominated bondof Petrofina (see No. 14 of the HistoricalReview). Spokesman of the ManagementBoard Hermann J. Abs was looking for pos-sibilities to place a DM-denominated foreignbond. In the same year, he was able to es-tablish contact to Anglo American Corpora-tion of South Africa, which wanted to take upsuch a bond.At this time, Deutsche Bank had increasedits focus on Africa. Above all due to its wealthin raw materials, Africa was considered acontinent with promising economic pros-pects. However, the dawning decolonizationwas an unpredictable political factor. South

Africa drew special attention as the mosthighly developed country economically, withthe strongest market economy. For their part,South Africa’s government and sections of itsbusiness community were interested in astronger involvement of continental Euro-pean and, in particular, German companies.This was intended to mitigate the dominanteconomic influence in South Africa of thesegment of its population of English descent.The German Federal Government expresslypromoted economic relations with SouthAfrica. Germany’s export interests were alsoinvolved here, as the raising of capital for in-dustrial developments in South Africa wasoften linked to the issuing of orders to theoriginating country’s industry.

The bond contract signed for the AngloAmerican Corporation by Harry F. Oppenheimerand Esmond C. Baring; for Deutsche Bank byHermann J. Abs and Heinz Osterwind.

Thus, it came to be that the first foreign bondon Germany’s capital market since the startof the First World War was issued byDeutsche Bank for a South African companyin 1958. The Anglo American was one of thelargest mining finance companies of SouthAfrica, with a large number of subsidiaries

Historical Associationof Deutsche Bank e. V.

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and shareholdings. Founded in 1917 by theJewish businessman Ernest Oppenheimer,who came from Friedberg in Hesse, thecompany profited from the globally increas-ing demand for raw materials and the strongeconomic development of South Africa fol-lowing the Second World War. It specializedin gold, diamond, coal and copper mining inthe South African Union as well as the Fed-eration of Rhodesia and Nyassaland. Due toreciprocal capital participations, the AngloAmerican was closely affiliated with theDe Beers mining group. Together, theyformed one of the most important privatecorporate groups in South Africa. With itssales organization located outside the coun-try, the De Beers Group sold more thanthree-quarters of the world’s annual produc-tion of raw diamonds.

Blank form of the Anglo American bond of 1958

Many years later, Abs disclosed how he hadconvinced his colleagues on the Manage-ment Board to approve this exposure: “Oneof the rules of Deutsche Bank was that abond had to be approved by every memberof the Management Board. I decided tospeak to each member in turn. I telephonedafter midnight with one after the other andasked whether they would approve my pro-posals if each other Management Boardmember were to do the same. Each declared

they would be prepared, and in this way Igained the approval to proceed as I hadwanted to.” Thus, the bond was brought ontothe market by Deutsche Bank alone, withouta syndicate, as Abs did not want to share theprestige of having issued the first foreignbond with other banks.

Following the signing, Abs gave an interview in hisoffice to a reporter of the regional radio broad-caster, Hessischer Rundfunk.

And yet the political environment surroundingthe bond was controversial. At approximatelythe same time, Hendrik F. Verwoerd took of-fice as Prime Minister – an “impatient Apart-heid theoretician with a stunning intellect andnearly fanatic will,” as the Frankfurter Allge-meine Zeitung portrayed him. The interestsof Anglo American were not compatible withVerwoerd’s policies of strict racial segrega-tion. The company depended on its blackworkers, and its president Harry F. Oppen-heimer criticized the government’s race poli-cies at every opportunity offered. At the gen-eral meeting of his company in 1960, hededicated two-thirds of his speech to thistopic.At DM 50 million, the bond’s volume was notof an exceptional size for Deutsche Bank. Incontrast, its business-policy importance wasconsidered to be very high, along with its in-fluence on the development of the interna-tional capital market. Approximately one thirdof the bond volume was allocated to foreignbanks. On October 1, 1958, Deutsche Bankplaced the debenture bonds it had underwrit-ten for sale to the public on the FrankfurtStock Exchange. They bore interest of 5½percent and were thus slightly above the levelof the German capital market. Already on thefirst day, the bonds were oversubscribed sev-eral times over. Creditors were able to ex-change their bond units up until maturity onSeptember 30, 1963, for common shares of

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the company – the Anglo American was thefirst foreign stock listed in Germany. And most

bondholders ultimately did so, except for asmall remainder.

Staging an event: the completion of the Northern Pacific in 1883On September 8, 1883, an illustrious groupof politicians, businessmen, military leaders,railwaymen and journalists gathered near asmall town in the wilds of Montana in Amer-ica. They came to celebrate the conclusion ofa large project: Henry Villard, President ofthe Northern Pacific Railway, had sent invita-tions around the world to persuade this thor-oughly mixed group of people to travel to anisolated location. As he was no fan of half-hearted undertakings, the invitation was partof a three-week trip across the United Stateswith the assurance: “It is the company’s wishthat its guests should not have any personalexpenses during the entire journey.”

Henry Villard in 1883: “He is tall and burly withbroad shoulders, a big chest and strong neck.The profile of his gentlemanly face has noblefeatures. His already greyed, well-groomed hairlays close to his head. Under the high smartforehead clear, open eyes shine brightly. Hismouth and chin show an unusual energy.” (PaulLindau)

At this time, Deutsche Bank did not yet haveany business relations with the Northern Pa-cific. But Friedrich Kapp, member of the

Supervisory Board of the bank and a veteranof the 1848 revolution, was friends with Vil-lard, having returned to Germany in 1870after two decades spent in the United States.Kapp procured the invitation to the trip for theManagement Board Spokesman Georg Sie-mens. Another member of the group wasHerman Marcuse, another influential memberof the Supervisory Board.The German travel group, approximatelythirty people, left Bremerhaven on Nord-deutsche Lloyd’s steamer the “Elbe” on Au-gust 15, 1883. The ship reached its destina-tion with a delay so that Villard, who hadwanted to welcome his guests as early aspossible, had sailed towards them on thepreceding evening in a yacht to no avail. Af-ter the arrival in Hoboken, he accompaniedthem on a ferry chartered especially for thisto New York. The German visitors present-ed Villard with a handcrafted, magnificentlydesigned book containing their signed photo-graphs that weighed about 30 pounds.After a comprehensive sightseeing tour,trains with several additional special wagonsleft the city on the evening of August 29,heading west. Here, too, there was no lackof sightseeing tours, in order to demonstratethe progress in settling and economicallydeveloping the Wild West. And Villard knewhow to make the journey a triumph march.Thus, as they gradually approached fromthe East, additional trains came from theWest Coast, heading for the destinationnear today’s Gold Creek – which was reg-istered one hundred years later as a historicsite of the State of Montana.The stretch of track had in fact already beencompleted on August 22. A newspaper arti-cle reported that work had begun at five inthe morning and was completed at three in

Laying track in Montana circa 1882

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the afternoon, after five miles of track hadbeen laid – from each direction, both theWest and the East – the largest daily perfor-mance since the beginning of the NorthernPacific’s construction. However, in order tomake the planned celebration a demonstra-tion of the technical skill of the track con-struction crew, the two stretches were notlaid in their final location, but only temporar-ily over several hundred metres. As the traincoming from the West was delayed, itwas late in the afternoon, after numerousspeeches, before the last railway spikecould be set. But, contrary to most reports, itwas not a golden or even a gilded spike, aswas customary at such ceremonies, thatwas driven in as the hammer went fromhand to hand, from the former U.S. Presi-dent Ulysses S. Grant to Villard’s little son,but rather a plain old iron spike. However,this does not mean that it was an ordinaryone: reportedly, it was the exact same rail-way spike that had first been hammered inwhen the Northern Pacific’s constructionstarted, and consequently the last person todrive the spike in was H. C. Davis, who haddone so thirteen years previously with thefirst one. In addition to the invited guests, alarger group of viewers had found their wayto the isolated location, estimated at 3,000to 5,000 attendees, and their enthusiasmmust have been indescribable: “The heightsreverberated with their cheers.”Anton von Werner, known for his large-scalepaintings of important events from the his-tory of the German Empire, had received aninvitation from Villard to paint a large-sizedpicture of the celebration. Although he waskeen on the prospects of undertaking a tripto America in the company of so many pro-minent people, the painter had to declinebecause of his recently completed monu-mental work, as he had learned that the

An artistic presentation, probably slightly modi-fied, of the joining of the track in 1883

The completion of the Northern Pacific wasechoed in numerous press articles; furthermore,in Germany two extensive travel reports werepublished soon afterwards.

Emperor intended to lend the honour of hispresence to the ceremonial unveiling of thepanorama on the memorial day of the Battleof Sedan. Werner thus recommended hiscolleague Konrad Dielitz for the work, whothen actually travelled to America. The NewYork Times was already able to report thatthe size of the “monster painting” would be20 by 15 feet and that the princely sum of20,000 dollars had been agreed upon; how-ever, the picture never came to pass as theclient was no longer in the services of theNorthern Pacific only a few months after thecompletion of the railway. The immenselyexceeded construction costs had broughtthe company into a state of crisis.As to Deutsche Bank, the extravagancethat Villard had undertaken to impress hisguests did not go unrewarded: the bankparticipated in the financing of the NorthernPacific – an exposure which was to causeseveral headaches during the next twodecades, but which ultimately turned outwell.

Remembering Paul Millington-HerrmannPaul Herrmann was born in Hamburg onNovember 10, 1858. His father was thedirector of De Chapeaurouge & Co. Succ.,a traditional bank with Huguenot roots,where the books were still kept in French.Against expectations, Paul, who had notalways been a convincing pupil, decided totake up the same profession. Heremembered for the rest of his life how hisfather on the morning of April 11, 1876,took leave of him at the door of hisapprenticeship master’s with tears in hiseyes saying, »now, try to be a respectablechap! I’m afraid nothing will come of it«. Hecompleted his apprenticeship at HallerSöhle & Co., then one of the richest privatebanks in Hamburg, however, it had tocease payments in 1907 followingmismanagement by the subsequentgeneration. At the end of hisapprenticeship, Herrmann worked for sixmonths at the Hamburg branch ofMendelssohn & Co. and completed hismilitary service before going to Spain,where he met the subsequent Spokesmanof Deutsche Bank's Management Board,Arthur Gwinner, then still Director of theBanco General de Madrid, who invited himto go to a bull fight with him. Trips toEngland and France followed.Back in Germany, after his father had beenable to form a better opinion of him, in 1883,he became first an authorized signatory and

In the late 1920s

In his own words IEach exchange transaction of this kindbrings about a vast amount of technicalprocedures in our bank and as allexecutive and senior staff are up to theirears in work as a result of the enormousstock market, foreign exchange, loan anddiscounting business, it is technicallyimpossible to carry out these newtransactions with a reasonable amount ofintegrity and to manage the adjustment ofthe newly integrated (procedures) to thehead office successfully. Therefore, wehave to be honest and open withourselves, that we must not carry out anytransactions which are technically difficultto execute […].Letter to Philipp Martens dated October 12, 1922, on atakeover of the Lübecker Privatbank

then a partner in his father’s company. Dueto inconvenience and annoyance owing tohis sharing the same name with a Brunswick-based company, in 1891 he applied to theHamburg Senate to have his name changed.From then on, he added his English wife’smaiden name and called himself Millington-Herrmann.When the German Stock Exchange Actincreased the risk associated with arbitrageoperations in the mid-1890s, in whichDe Chapeaurouge & Co. Succ. was pre-dominantly active, Millington-Herrmann leftthe company, which went into liquidationshortly after. He rekindled his acquaintancewith Arthur Gwinner, with the result thatDeutsche Ueberseeische Bank sent him toChile, where it was intending to expand itsoperations. Almost simultaneously, theDisconto-Gesellschaft founded the Bank fürChile und Deutschland, with the result thatinstead of one, there were now two Germanforeign banks looking for business in Chile.Deutsche Ueberseeische Bank was aheadby a nose in this increasingly stiff com-petition. A merger of both banks was con-sidered only two years later but nothingcame of it. These were difficult years botheconomically and politically for Chile, asituation which posed many obstacles to thecreation of a new bank. Nevertheless, withthe exception of Valparaiso, where Millington-Herrmann was working, branches wereopened in four other cities. He alsoembarked on a study trip to Peru andBolivia, the results of which were useful for

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the further expansion of the bank. »I found itvery gratifying to create something newand wholesome from nothing«, recalledMillington-Herrmann decades later. How-ever, this was not without risk: in 1897 hecontracted typhoid fever, but contrary to allthe doctors’ expectations, he recovered; »thetin box in which my remains were to be laidwas already in the cellar«.After returning to Germany, Millington-Herrmann was appointed member of the

Overseas trip to South America in 1929

Management Board of Deutsche Ueberseeische Bank in 1899. He left the bank in1901, when, following the collapse of theLeipziger Bank, he organised the opening ofa branch of Deutsche Bank in Leipzig in thespace of a day. This was followed shortlyafter by a branch in Dresden, where he tookover the management. The bank rewardedhis success in Saxony by appointing him tothe Management Board in 1911, where hewas responsible for overseas business. Heonly left the bank at the end of 1928 at theage of 70, thereafter joining the SupervisoryBoard of Deutsche Bank until 1934. PaulMillington-Herrmann died on May 24, 1935.

In his own words IIAs to your proposals for a betteridentification of our branch using companysigns, I agree to the name of DeutscheBank also being placed perpendicular tothe front of the building. It will mostcertainly be advantageous if the sign canbe seen and read at eye level and alsofrom a distance, thus making it easier tofind the way to the bank. I am lessenamoured of your suggestion to affix anautomatic neon sign, as I believe this kindof advertising lies somewhere beyond thelimits of what is suitable for a bank. In theevening, the public is less likely to devoteits attention to the opportunities that abank can offer and tends more to seek outplaces of recreation whose bright lightscannot be overlooked.Letter to Wilhelm Wilke (Magdeburg Branch) datedJune 14, 1928

Lost & FoundStrict conventions

»Employees who are found to have removedcrockery or cutlery belonging to the Club orcanteen will in future be excluded from

attending these charitable institutions.«(Deutsche Bank Head Office Berlin circulardated August 3, 1922)

Imprint: This Historical Review is published by the Historical Association of Deutsche Bank, Rossmarkt 18, 60311 Frankfurt.Internet: http://www.bankgeschichte.de. Responsible in accordance with the German Press Act: Michael Münch.