Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Western EuropeDecember 5 2005

The Conservatives

When Dietrich Hoppenstedt, president of the German Sparkassen Association (DSGV), retires at the end of September 2006, many of the association’s faithful will be very sorry to see him go.
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

The reason is that, despite incredible pressure from the private banks’ lobby (BdB) and criticism from the European Commission, Mr Hoppenstedt has managed to persuade the SPD and CDU/CSU politicians to keep the Landesbanken and Sparkassen publicly owned.

Clearly, politicians wish to retain control over the banks at the state and local level, but Mr Hoppenstedt also argues that the current system wards off financial exclusion of ordinary people and small and medium-sized enterprises (SMEs), known in Germany as the Mittelstand. To buttress his argument, he maintains that the privatisation of Sparkassen in other European countries has caused financial exclusion.

“The Italian market, now dominated by a few players, charges fees that are five times as high as in Germany, and the European Commission estimates that 20% of the population has no access to a bank account,” he says. The effect of consolidation in the UK has been that “around 30% of the population cannot currently obtain a loan”, he adds.

As effective as Mr Hoppenstedt has been, he has unfortunately been somewhat undermined by the very banks he has sworn to protect. To compensate for the decline in competitive advantage in wholesale banking (having lost the state guarantee), several Landesbanken have begun encroaching on the retail business of the Sparkassen. BayernLB has created an internet bank that does business in east Germany, and Helaba has launched one to capture nationwide business.

Following Mr Hoppenstedt’s prodding, top officials from the Landesbanken and Sparkassen reaffirmed in early November that they would keep their businesses separate from one another. However, BayernLB and Helaba were not ordered to stop their retail offensives. Landesbanken have either acquired or are thinking about acquiring smaller private banks, which would expand Germany’s bloated state-owned sector even further. The battle is far from over.

THE BULWARKS: Roland Koch & Harald Ringstorff

In the past two years, Roland Koch and Harald Ringstorff, prime ministers of Hesse and Mecklenburg-Western Pomerania (MWP) respectively, have intervened to prevent privatisations of Sparkassen in their states. Since Mr Koch is from the CDU and Mr Ringstorff the SPD, the fight to keep Germany’s banks in government hands clearly transcends party politics.

When in early 2004 the mayor of Stralsund, a city in MWP, announced that he intended to sell an ailing Sparkasse to private banks, Mr Ringstorff’s government quickly amended a state law to thwart him. Commerzbank was one of the private banks gunning for Stralsund Sparkasse, which now will be acquired by another Sparkasse in Greifswald (a city close to Stralsund). Commerzbank – which as a domestic-focused bank has much to gain from buying Sparkassen in cities – was frustrated again in May 2005 by Mr Koch, who ensured that troubled Frankfurter Sparkasse (Fraspa) would be taken over by Landesbank Hessen (Helaba).

“If we had let Stralsund’s Sparkasse be sold to a private bank, that would have been the end of public banks in Germany,” says a spokesman for Mr Ringstorff. “The terrible thing about that is that the private banks, captive to capital markets, only buy Sparkassen that are profitable and have a big client base. They don’t care about remote areas, so those people and SMEs suffer.”

In Mr Koch’s case, it is somewhat contradictory that a self-styled financial market moderniser (he has done much for Frankfurt, including pushing for German real estate investment trusts) is fighting change. Speaking to Handelsblatt, he justified his stance by noting that privatisation of public banks could prompt a huge economic shock for Germany and that “it wouldn’t make for stronger banks”.

MODERNISER OF HIS OWN WORLD: Christopher Pleister

cp/11/pPleister, Christoph.jpg
In the raging debate over the future of Germany’s three-pillar system, the co-operative banks are not normally the target of criticism or even takeovers. This is strange, as there is nothing legally preventing the likes of Commerzbank or one of the other private banks to acquire them.

 

Were M&A to happen between private banks and co-operatives, which control around 30% of the domestic market, Germany would clearly be less overbanked.

The trouble is that the shareholders of co-operatives are every bit as committed to independence from private banks as their counterparts at the Sparkassen/ Landesbanken. Like the public banks – with which they compete in remote areas – they never tire of arguing that their independence guarantees “full supply of financial services to people and SMEs”.

Christopher Pleister, president of the German Co-Operatives Association (BVR), observes that amid the overcapacity, consolidation within each pillar is in full swing.

“The fact is that all three banking groups have no alternative but to consolidate,” he says. The co-operatives, have reduced the number of branches to about 1300 from as many as 8000 in 1970, he adds.

Mr Pleister has also lent his full backing to the consolidation achieved by Ulrich Brixner, CEO of DZ Bank. By fusing several wholesale banks for co-operatives together, Mr Brixner has created the powerful DZ Bank, which rivals Germany’s biggest private banks in terms of balance sheet assets.

The BVR president dismisses the argument that banks cannot earn any decent money under the current conditions. “Our success is not only reflected in the consolidated results for 2004 [co-operative banks’ pre-tax profits totalled €2.7bn] but also in the A+ long-term debt rating from Fitch,” he says.

For him, Germany’s pressing problem is not lack of consolidation but over-regulation. “The banking industry is regulated like no other in Germany and this causes big problems for smaller banks. Incessant reporting to regulators is just one example. Ending such over-reaching bureaucracy should be one of the new government’s top priorities,” he says.

THE WILDCARD: Jochen Sanio

Banking regulators are usually known for their discretion on financial policy issues, and Jochen Sanio, president of BaFin, the powerful German financial services regulator, is no exception. As a regulator, he is legally bound to remain neutral but, when it comes to shaping financial policy, Mr Sanio and his agency wield an enormous amount of influence. BaFin’s mission is, after all, to ensure a safe and efficient financial industry.

It is therefore significant that Mr Sanio has recently fretted about the negative effect that Germany’s overbanked market is having on the sector’s profitability. “There is an urgent need to improve profitability. Rigid as the current structure is, there remain opportunities to consolidate within sectors and there is still room to cut costs,” he told one newspaper.

In separate remarks to a news agency, Mr Sanio said that the sector’s meagre profitability was depressing the market capitalisation of its biggest banks and, hence, making them takeover targets. A good example of this was this year’s takeover of HVB, Germany’s second-largest private bank, by smaller Italian peer UniCredit.

Mr Sanio is not suggesting that to boost the sector’s profitability, the Sparkassen and Landesbanken should be privatised so that cross-pillar consolidation can commence. However, if profitability for the sector were to fall again to the abysmal levels of 2002, German banks’ annus horribilus, no doubt Mr Sanio would be one of the first people that the government would consult on what to do. In view of his recent comments, the open question is: would he contend that the three-pillar system is in the best interests of a healthy and vibrant German banking industry?

Was this article helpful?

Thank you for your feedback!

Read more about:  Western Europe , Germany