When a dozen police vans pulled up in front of Deutsche Bank's twin towers on a grey and chilly Frankfurt morning last November, chief executive Christian Sewing knew he was running out of time.

As camera crews broadcast the spectacular raid by more than 100 officers, Mr Sewing kept up appearances, lunching with the Federal Reserve's top banking supervisor in an exclusive corporate dining area at Deutsche's headquarters.

Elsewhere in the bank's premises - including the CEO's office - prosecutors, tax inspectors and armed police scoured filing cabinets and computers looking for evidence of alleged money laundering.

The traumatic day symbolised the end of an era for Deutsche, once the world's biggest bank by assets. By then, Mr Sewing already knew he was heading towards another dire set of quarterly earnings. Added to the raid, this emboldened him to call time on a two-decade attempt to conquer Wall Street.

Shares in Germany's largest lender were trading near 149-year lows, down almost 90 per cent from their 2007 peak. Funding costs were soaring, its credit rating had deteriorated to near-junk levels and revenues were in free fall.

The bank's strategy, described as "wait and hope" by one strategic adviser, relied heavily on the ever-more-remote prospects of interest rate hikes and a return of market volatility. Mr Sewing swiftly realised that something much more radical was needed.

"The raids and the downward spiral Deutsche found itself in afterwards were the real catalyst," said one member of the supervisory board. Another director said: "It wasn't just a minor heart attack."

The Financial Times (FT) spoke to more than two dozen people involved, to chart the origins of the most dramatic investment banking retreat since the fall of Lehman Brothers in 2008. It will cut 18,000 staff and shunt €288 billion (S$439 billion) of assets into a "bad bank" to be gradually offloaded.

PROJECT CAIRO

A week before Christmas last year, Mr Sewing summoned half a dozen of his closest confidants and outlined a project codenamed Cairo, his vision for axing vast ailing swathes of Deutsche's investment bank. In a confusing twist, parts of the project were later dubbed Dublin, a decision that left people in some meetings unsure what they were actually discussing.

Mr Sewing, a 49-year-old risk manager who joined Deutsche 30 years ago as an apprentice, had sketched a draft for the dramatic retrenchment exercise when positioning himself to replace Mr John Cryan early last year. He outlined an overhaul that would return the lender to its roots in European corporate banking. He felt Deutsche had frittered away this heritage during the past two decades as mercenary traders obsessed with bonuses took control.

In late January, Mr Sewing received a phone call that almost derailed Cairo. Mr Martin Zielke, his counterpart at Commerzbank, suggested they revisit a merger between the two, with the backing of Finance Minister Olaf Scholz.

Unable to turn the government down - having just revealed deepening losses at the investment bank - Mr Sewing diverted his troops to evaluate the deal. It took three months for Deutsche to conclude it could not afford to attempt such a complex merger while trying to fix its investment bank.

When the Commerzbank talks collapsed on April 25, Cairo was still an outline with only the "guard rails" in place, one senior executive said.The biggest decision was what to do about the bank's sub-scale equities division, which analysts and insiders estimated was losing US$600 million (S$820 million) a year.

Ultimately, they decided to close the entire global operation and shrink the trading balance sheet by 40 per cent, reversing years of unchecked expansion.

The other issue was how to form a new "bad bank" to segregate the unwanted equities business and tens of billions more in unprofitable, long-dated "dead wood" derivatives that were absorbing big chunks of capital.

CAPITAL SQUEEZE

Deutsche was desperate to avoid another capital raising, having already asked investors for €30 billion during the previous decade.

"(Sewing's) view was that a capital raise was a lazy way to do this," said a person familiar with the strategy debates.

"He kept saying, 'We have €54 billion of tangible equity, why can't I just use my own money?'"

But this required deeper cuts than his predecessors dared, and concessions from regulators. Eventually, the regulators were positive.

"We needed the buy-in of the regulators," said a person close to the chairman, arguing that this was why the bank waited so long.

"Imagine the reaction 15 months ago, when many could not even spell 'Sewing'."

One missing link fell into place barely two weeks ahead of the announcement - a change in arcane accounting rules became law, allowing Deutsche to digest higher restructuring charges and still pay interest on loss-absorbing AT1 bonds.

Missing a payment would have led to a revolt among debt investors and difficult questions about the bank's solvency, triggering "the collapse of the whole edifice", one former executive said.

THE LAST MILE

Another milestone was the annual shareholder meeting on May 23. Angry shareholders directed a volley of criticism at managers for 9½ hours.

Mr Sewing hinted at "tough cutbacks" but was short on detail, seemingly sticking to Deutsche's tendency of offering vague rhetoric instead of decisive action. But, immediately after the meeting, he acted, assigning more than 100 employees to a bottom-up analysis of every aspect of the investment bank.

Still, very few people knew the full picture. In the middle of last month, the FT reported that the bank was considering moving more than €50 billion of risk-weighted assets into a bad bank, prompting a jump in the shares over the following weeks.

The wider supervisory board was still very much in the dark. "You guys know more than we do," one member told the FT at the time.

This changed only on July 7, a Sunday. The supervisory board was run through Cairo in full.

At 4.29pm, a brief regulatory statement, lacking core details such as job cuts and new executives, was released.

Then, for more than half an hour, nothing happened. Just as Deutsche's press office prepared to press the button on two more detailed releases, the bank's notoriously unreliable IT played up: for some reason, computers froze.

In a panic, with all the phones ringing, the press team tried frantically to reboot computers and personally sent releases to journalists.

On Monday morning, investors initially seemed impressed, but Deutsche's shares gave up early gains to close the day down 5 per cent. They have since recovered but remain below the level before the announcement - hardly a ringing endorsement.

FINANCIAL TIMES