Germany

Heterodoxy is all the rage. Fashion rules. But the world needs the nagging, nurturing, normality of the Bundesbank more than ever before, writes Andrew Capon.

At first glance, German banking is in decent shape. Set within eurozone’s healthiest economy, the country’s three pillar banking system, once condemned as stodgy and old-fashioned, looks a smart way of guaranteeing diversity of lenders and ensuring nationwide coverage. Two pillars (or at least one and a half) are performing strongly, while the third is headed by a genuine national champion. But weak capital, declining margins, higher funding costs, a growing regulatory burden and a hostile political environment cloud an otherwise benign picture, reports Julian Lewis.

If debt management offices were cars, Germany’s Finanzagentur would be more Volvo estate than BMW convertible. Methodical and dependable, and good in a crash, the finance agency is Europe’s most predictable borrower. Germany would have it no other way — although investment bankers are crying out for more syndicated deals. Philip Moore reports.

If any set of borrowers has an access all areas pass to the capital markets party, it is Germany’s public sector credits. The Bund remains Europe’s de facto benchmark security and, along with the agencies that the federal republic also guarantees, is enjoying a period of sustained low yields and tight spreads. None of that looks set to change as the number of triple-A ratings around the globe dwindles. But that is not to say that German public sector funding officials can put their feet up and watch the cash roll in. KfW continues to help develop new markets, such as the offshore renminbi market, while the German Finance Agency has a new head, Tammo Diemer, who is taking over at a time when German finances are at the heart of Europe’s economic health. Diemer and KfW’s Frank Czichowski, along with senior capital markets bankers, joined EuroWeek in mid-March to discuss the German public sector bond markets.

In spite of Germany’s well developed support system for the federal states, investors clearly do not believe that the 16 Länder share the same credit quality, meaning that the funding status quo will remain broadly in place, with the weaker states accessing the market through pooled jumbo issues and the stronger borrowers issuing on a standalone basis. Unless of course, the German finance ministry changes its mind and endorses the Deutschland Bond concept. Stranger things have happened — even in Germany. Philip Moore reports.

German public sector borrowers have had a whale of a crisis. Indeed it is hard to find a point along the German sovereign’s curve at which an investor won’t have to pay, in real terms, for the privilege of funding Europe’s biggest economy. Ralph Sinclair discovers why that trend is set to continue.

Like many others, Germany’s banks made some bad decisions in the lead-up to the credit crisis. But as the country’s economy powers through Europe’s troubles with aplomb, its strong domestic investor base continues to serve the banks well — and international money is there to back them up. Will Caiger-Smith reports.

The German banking system suffered hefty losses in the financial crisis of 2007-2009, and has been shrinking for the past few years. With many banks relying on a strong domestic bid and funding through their retail and savings networks, German issuers are relatively rare in the public benchmark space.

German blue-chip companies enjoy some of the most attractive borrowing terms available in the capital markets. But while luxuriating in global investor demand, their core strength comes from their domestic market, where investors that have supported them through past crises can be relied upon in times of volatility. Nina Flitman reports.

Germany’s small and medium sized companies — the Mittelstand — are the envy of the industrial world. Yet their financing arrangements are often derided as old-fashioned. That is a mistake, argues Jon Hay. The strength of private, family ownership and the depth of Germany’s relationship-driven banking system are central reasons for the Mittelstand’s success. Now they are exploring a wider range of financial techniques — but at their own pace.

Most German companies have not suffered any funding crisis in recent years – collectively, they are the strongest group of corporate borrowers in Europe.

The equity capital markets are wide open for German issuers. If only they needed more equity, writes Nick Jacob.