Germany

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.

While Frankfurt vies with Paris to be Europe’s financial centre, it remains eclipsed by London. As Chris Wright reports, the only possible way it can usurp London’s position is if the UK were to quit the European Union. And although its political relationship with Europe is fractious, the UK knows it has too much to lose to let that happen.

The impressive stability of German real estate is drawing an expanding equity investor base but the onerous requirements of listing mean supply will likely continue to lag demand. Lucy Fitzgeorge-Parker reports.

High redemptions, combined with deleveraging and a drive towards deposit funding has put net first quarter covered bond supply in 2013 on track to hit record lows, said Barclays analysts on Thursday.

Overcollateralisation should not be the main factor when rating agencies assess covered bonds, according to Commerzbank.

Core and peripheral borrowers are waiting for a better market before bringing benchmark covered bonds. Safe-haven names are traditionally first to take advantage of returning stability. But southern European borrowers, which offer higher yields, juicers spreads and are less flexible over pricing, will find execution easier, said bankers.

Trading in Spanish and Italian covered bonds was relatively stable against asset swaps on Monday, while they tightened versus their domestic sovereign bonds, following the news that Cyprus faces a bail-out from the European Union.