Summary
Germany has been the most active in promoting consolidation in both the commercial banking industry as well as in the state banking sector. In concrete examples, the German government has acquired a 25 % direct stake in Commerzbank to ensure that its merger with Dresdner Bank will go ahead as planned and has recently given a helping hand to Deutsche Bank in its bid to acquire a large stake in Postbank to beef up Deutsche Bank's domestic retail franchise. The consolidation of the already state-owned sector of Landesbanken and Sparkassen is the bigger challenge. The government will have to persuade the different Landesbanken of the German Federal States and also the mutual savings banks (Sparkassen) to accept consolidation.
Analysis
While the banking sector is in a consolidation process all over Europe, Germany has been the most active in promoting consolidation in both the commercial banking industry as well as in the state banking sector. Berlin has long nurtured the dream of consolidating the country's banking industry around a handful of large groups and, until recently, this generally occurred in a behind-the-scenes manner. Increasingly, however, the German government has stepped up its intervention with massive capital injections, state guarantees and in some cases direct or indirect participations in commercial banks to prop up the system. It has even started taking over, both directly and indirectly, stakes in such banking institutions as Deutsche Bank, Dresdner Bank, Commerzbank and Postbank and is therefore co-determining the policies at four of Germany five largest private banks. Only the Hypovereinsbank is currently still held by Unicredit Group. In concrete examples, the German government has acquired a 25 % direct stake in Commerzbank to ensure that its merger with Dresdner Bank will go ahead as planned and has recently given a helping hand to Deutsche Bank in its bid to acquire a large stake in Postbank to beef up Deutsche Bank's domestic retail franchise. Deutsche Bank's CEO, having long resisted turning to Berlin for support, is now nonetheless looking to the German government as one of his new indirect shareholders to enable him to pull off the Postbank acquisition. Instead of having to pay cash for the Postbank stake, he has agreed to a share swap in which Deutsche Post will take over 8 % of Deutsche Bank. Since 31 % of Deutsche Post is owned by the state-owned KfW bank, the German government would thereby become an indirect shareholder of Deutsche Bank. Apart from this transaction, the German government does not seem to be interested in a nationalization of banks or any other private companies. Germany is, however, increasingly worried by the consolidation being undertaken in the US since a handful of giant US banks would pose a huge competitive threat to a fragmented German banking industry. The crisis is forcing the German government to promote similar combinations to protect the competitive position of Germany’s banks. Berlin's generous helping hand is now at least set to complete the consolidation of the German commercial banking sector around two big groups: Deutsche Bank-Postbank and Commerzbank-Dresdner, as noted above. The consolidation of the already state-owned sector of Landesbanken and Sparkassen is the bigger challenge. The government will have to persuade the different Landesbanken of the German Federal States and also the mutual savings banks (Sparkassen) to accept consolidation. While there had been little incentive for state politicians to agree upon such a consolidation process before the subprime crisis began, all of these formerly prosperous and well-regarded banks are now facing massive liabilities and depending on the government’s rescue plans to help them managing their problems arising from the subprime crisis. Consequently, the government now has strong arguments to push them into a consolidation process.
