German bank consolidation pressures grow

BERLIN – Foreign banks are moving to beef up their presence in Germany as growth in Europe’s biggest economy moves into a higher gear and fresh signs emerge of a shakeout in the country’s fragmented banking industry.

This week a city council in Germany’s former east took a somewhat revolutionary step for the nation’s finance sector by saying it was planning to put its savings banks up for sale as a drive for consolidation among the country’s public sector savings and regional banks gained momentum.

Earlier this month three of the nation’s Sparkassen, or savings banks, in Duesseldorf, Cologne and Bonn announced they were in talks that could lead to a merger that would create a new banking group rivalling some of the nation’s key financial houses.

This was followed by another two state-owned banks – Landesbank Baden Wuerttemberg and Landesbank Rheinland-Pfalz – revealing that they were also holding merger talks, which could help quicken the pace of consolidation among Germany’s state-run banks as they prepare for the removal of state guarantees from July 2005.

Selling off state banks could help to ease the financial pressure on Germany’s state and regional governments, which have been hit by a budget crunch as a result of falling tax revenue and tough deficit rules imposed on euro member states.

While the move by the Straslund city council to sell off its Sparkasse is likely to face a legal challenge, several commercial banks have already indicated an interest in buying the savings bank which analysts estimate could be worth about EUR50 million.

Many analysts see the restructuring of the publicly owned banking industry as a key step towards rationalisation in Germany’s “over banked” banking sector with rumours continuing to swirl around the industry about possible takeover targets or merger candidates among the nation’s big four commercial banks – Deutsche Bank AG, HVB AG, Dresdner and Commerzbank AG.

Despite official denials, the talk is that big foreign-owned banks are on the look out for a way into the giant German finance market with Credit Suisse and Royal Bank of Scotland along with Dutch-owned Abn-Amro and Italy’s Unicredito reported to be considering pouncing on one of Germany’s large banks with HVB and Commerzbank seen as prime takeover targets.

In the meantime, foreign banks have been forging a bigger presence in Germany as the prospects grow both of a rebound in the nation’s economy and an expanding mergers and acquisition business.

“There is a basic positive tendency towards Germany,” said Peter Coym, the chairman of the Association of Foreign Banks in Germany with international banking powerhouses such as UBS Warburg and JP Morgan reportedly considering boosting their profile in Germany.

US-owned investment house, Lehman Brothers has already shifted ten investment bankers from London to Frankfurt.

The rating agency Fitch has already declared that 2004 is the year of European bank mergers.

The banks’ long-running corporate restructuring, secure capital provisions and the prospects of an economic upswing has helped to lay the groundwork for consolidation, in particular in the German and Italian banking sectors, Fitch said in a report released this month.

Indeed, despite a rigorous round of restructuring and cost cutting, Germany still has 2,700 lending institutions and about 42,300 branches serving a population of about 82 million, which represents a far higher ratio than most of its European partners.

The renewed pressures for a shakeout in the industry follow two years of grim earnings, concerns about a cash crisis, plunging stock markets, mass layoffs and escalating loan loss provisions as the German and European economies sunk into stagnation.

The commercial banks’ recent bleak performance also comes in the wake of two embarrassing failures on the part of the banks to respond to the pressures for consolidation by taking matters into their own hands and attempting to negotiate a merger among themselves.

Now the state-owned banks appear to have decided to try their hand at pulling off a merger with analysts saying that joining forces is one way that the state-controlled banks will be able to maintain their ratings once the state guarantees have been phased out.

A tie-up between Stadtsparkasse Cologne, Stadtsparkasse Duesseldorf and Sparkasse Bonn would create Germany’s second biggest savings bank with the new merged entity to be called Sparkasse Rheinland and result in savings of EUR 40 million.

DPA
Subject: German news