Tuesday, 10 July 2012

Vorsprung Durch Banken!

It was reported yesterday that the European Commission has reached an agreement on the terms of a bank restructuring, after the bank received a €10bn bailout during the financial crisis.  According to the deal, this bank will reduce its balance sheet by half and will be obliged to repay €5bn of state aid by 2019.  It is also expected to sell or reduce some of its higher risk international activities in property and project finance and will, instead, concentrate on lending to the “real economy”.  It will be constrained from making any acquisitions or paying dividends in the interim.

It all sounds depressingly familiar, but have you guessed the identity of the bank yet?  Is it one of the Spanish Cajas, or savings banks, perhaps?  Is it one of the regional Italian banks?  A Greek bank?  Portuguese?  Irish? Step forward Bayern LB, the Bavarian based Landesbank.  In contrast to the impression that one might have from the media, German banks have required capital injections to the tune of €52 billion over the last few years, not a million kilometres, it must be said, from the reputed figure of €62billion required to rescue the Spanish banking sector.  Commerzbank’s share price fall of 94.5% over the last five years would earn a place on the podium of global struggling banks while even the shares of bellwether Deutsche Bank have fallen by 69% over the same period.  This is, of course, in line with the majority of the European banking sector and reflects the interrelatedness of European finance.

However, while Angela Merkel might wish that the rest of Europe were more like Germany, I would suggest that this probably does not extend to its banking industry which has shown a refreshing sense of solidarity with its euro cousins!  Vorsprung durch banken!

Rob Burgeman
Divisional Director

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