title:Bankers in Denial author:Sam Vaknin source_url:http://www.articlecity.com/articles/business_and_finance/article_417.shtml date_saved:2007-07-25 12:30:05 category:business_and_finance article:

Denial is a ubiquitous mental protection mechanism. It comes to the repression of unhealthy information, ugly knowledge, and anxiety-inducing studies. Judging through the German press, the rustic is in a state of denial in regards to the waning well being of its economic system and the dwindling fortunes of its monetary device.
Commerzbank, Germany’s fourth greatest lender, noticed its stocks decimated through greater than 80 p.c to a 19-year low, having larger its loan-loss provisions to hide flood-submerged east German money owed. Confronted with a precipitous drop in web benefit, it reacted reflexively through sacking but extra group of workers. The stocks of many different German banks industry beneath e book price.
Dresdner Financial institution – Germany’s 3rd greatest deepest established order – already trimmed an remarkable one 5th of its team of workers this yr on my own. Different main German banks – corresponding to Deutsche Financial institution and Hypovereinsbank – resorted to panic promoting of fairness portfolios, real-estate, non-core actions, and securitized property to patch up their sick source of revenue statements. Deutsche Financial institution, for example, unloaded its US leasing and custody companies.
On September 19, Moody’s modified its outlook for Germany’s greatest banks from “strong” to “adverse”. In a scathing commentary, it stated:
“The score company mentioned a number of occasions already that present tricky financial prerequisites which are hurting the banking trade in Germany come on most sensible of the legacy of previous methods that had been much less excited about strengthening the banks’ routine incomes energy. Certainly, the German private-sector banks, as a bunch, stay a few of the lowest-performing massive Ecu banks.”
Closing week, Fitch Rankings, the global company, adopted go well with and downgraded the long-term , short- time period, and person scores of Dresdner Financial institution and of Bayerische Hypo- und Vereinsbank (HVB).
Those had been best the ultimate in a sequence of adverse outlooks touching on German insurers and banks. It’s ironic that Fitch cited the “undergo fairness markets (that) have taken their toll no longer best on buying and selling effects but additionally on gross sales to personal shoppers, the fund control trade and on company finance.”
Germans was once resistant to the inventory alternate and its lures till they had been stuck within the frenzied world equities bubble. Moody’s observes wryly that “a subject material and strong retail franchise in its house marketplace, despite the fact that extra modestly successful, can and does constitute a competent line of defence in opposition to brief difficulties in monetary and wholesale markets.”
The technology-laden and scandal-ridden Neuer Markt – Europe’s solution to The usa’s NASDAQ – in addition to the SMAX alternate for small-caps had been close down ultimate week, the previous having misplaced a staggering 96 p.c of its price since March 2000. This in comparison to Britain’s AIM, which misplaced “best” part its value. Even Britain’s notorious FTSE-TechMARK pale through a “mere” 88 p.c.
Only one corporate floated at the Neuer Markt this yr – in comparison to greater than 130 two years in the past. In an remarkable display of “no-confidence”, greater than 40 corporations withdrew their listings ultimate yr. The Duetsche Boerse promised to create two new categories of stocks at the Frankfurt Inventory Trade. It belatedly vowed to introduce extra transparency and openness to international traders.
Banks were accused through irate shoppers of serving to to record irrelevant companies and offering fraudulent advisory products and services. Court docket instances are pending in opposition to the likes of Commerzbank. Those lawsuits might sprint the financial institution’s hopes to transport from retail into deepest banking.
To additional compound issues, Germany is within the throes of a tsunami of company insolvencies. This long-overdue restructuring, even though really useful in the end, could not have transpired at a worse time, so far as the banks move. Huge provisions and write-downs have voraciously fed on their capital base at the same time as running income have plummeted. This double whammy greater than eroded some great benefits of their painful cost-cutting measures.
German banks – no longer in contrast to Jap ones – care for incestuous relationships with their shoppers. When it in spite of everything collapsed in April, Philip Holzmann AG owed billions to Deutsche Financial institution with whom it had a cordial operating courting for greater than a century. However the financial institution additionally owned 19.6 p.c of the sick building behemoth and chaired its supervisory board – the relics of earlier shambolic rescue applications.
Germany competes with Austria in over-branching, with Japan in souring property, and with Russia in overhead. In keeping with the German day by day, Frankfurter Allgemeine Zeitung, the fee to source of revenue ratio of German banks is 90 p.c. Mass bankruptcies and consolidation – voluntary or enforced – are unavoidable, particularly within the cooperative, loan, and financial savings banks sectors, concludes the paper. The method is a decade-old. Greater than 1500 banks vanished from the German panorama on this length. Every other 2500 stay making Germany nonetheless some of the over-banked international locations on this planet.
Moody’s do not put a lot inventory within the cost-cutting measures of the German banks. Added festival and a “extra sensible pricing” of loans and products and services are way more necessary to their shriveling final analysis. However “that mild isn’t but visual on the finish of the tunnel … and difficult marketplace prerequisites are prone to persist in the interim.”
The woeful state of Germany’s monetary device displays no longer best Germany’s financial malaise – “The Economist” known as it the “ill guy” of Europe – however its failed try to imitate and emulate the inimitable monetary facilities of London and New-York. This can be a rebuke to the faulty trust that capitalistic fashions – and establishments – may also be transplanted of their entirety throughout cultural obstacles. It’s incontrovertible evidence that historical past – and the core competencies it spawns – nonetheless subject.
When German insurers and banks, for example, branched into faddish companies – such because the Web and cellular telephony – they did so in vacuum. Germany has few mission capitalists and American-style marketers. This faulty technique ended in a daunting erosion of the energy and capital base of the intrepid traders.
In a way, Germany – and certainly its jap Lander – is a rustic in transition. Possibility-aversion is giving approach to risk-seeking within the types of investments in equities and derivatives and mission capital. Circle of relatives possession is regularly supplanted through inventory alternate listings, imported control, and mergers, acquisitions, and takeovers – each pleasant and adversarial. The social contracts relating to employment, pensions, the position of the industry unions, the stability between human and pecuniary capital, and the carving up of monopoly marketplace niches – are being re-written.
World integration implies that, as sovereignty is transferred to supranational entities, the comfy courting between the banks and the German executive on all ranges is over. Closing October, Hans Eichel, the German finance minister, introduced OECD-inspired anti-money laundering measures which are prone to compromise financial institution secrecy and consumer anonymity and, thus, harm the German – from time to time murky – banking trade. Erstwhile rampant executive intervention is now mitigated or outright prohibited through the Ecu Union.
Thus, German Laender are pressured, through the Ecu Fee, to partially abolish, 3 years therefore, their promises to the Landesbanken (regional building banks) and Sparkassen (thrifts). German diversification to Austria and central and east Europe will supply best brief respite. Because the EU enlarges and digests, on the very least, the Czech Republic, Hungary, and Poland in 2004-5 – German franchises there’ll come beneath the uncompromising remit of the Fee over again.
Typically, Germans fared worse than Austrians of their extraterritorial banking ventures. Much less cosmopolitan, with much less publicity to the portions of the previous Habsburg Empire, and suffering with a stagnant home economic system – German banks discovered it tricky to show central Ecu banks round as effectively because the likes of the Austrian Erste Financial institution did. They did make inroads into area of interest structured financing markets in north Europe and america – however those appear to be random tours somewhat a studied shift of commercial emphasis.
At the shiny facet, Moody’s – even though it maintains a adverse outlook on German banking – famous, in November 2001, the banks’ “intrinsic monetary energy and various running base”. Tax reform and the hesitant advent of personal pensions also are purpose for restrained optimism.
Pursuant to the acquisition of Drsedner Financial institution through Allianz, Moody’s welcome the emergence of bancassurance and Allfinanz fashions – monetary products and services one prevent retail outlets. German banks also are located to make the most of their really extensive investments in e-commerce, expertise, and the restructuring in their department networks.
The Despair on 1929-1936 can have began with the meltdown of capital markets, particularly that of Wall Side road – but it surely used to be exacerbated through the cave in of the concatenated global banking device. The sector nowadays is much more built-in. The cave in of a number of primary German banks may end up in dire penalties and no longer best within the euro zone. The IMF says as a lot in its “International Financial Outlook” revealed on September 25.
The Germans deny this analysis – and the prognosis – vehemently. Bundesbank President Ernst Welteke – a board member of the Ecu Central Financial institution – spent the simpler a part of ultimate week implausibly denying any disaster in German banking. Those are mere “structural issues within the vulnerable section”, he instructed a press convention. Not anything consolidation cannot resolve.
It’s this constant refusal to confront truth that’s the maximum worrisome. Within the quick to medium time period, German banks are prone to outlive the hurricane. Within the procedure, they are going to lose their iron grip at the home marketplace as buyer loyalty dissipates and international festival will increase. If they don’t confront their plight with honesty and open-mindedness, they could be lowered to glorified back-office extensions of the worldwide giants.

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