Germany’s leading banker has shifted the terms of the country’s concerns over a credit crunch by proposing a fund through which banks could provide companies with equity to strengthen their balance sheets as a prelude to more lending.
The surprise idea from Josef Ackermann, chief executive of Deutsche Bank, turns on its head repeated demands from Germany’s corporate sector that banks need to do more to strengthen themselves with more capital so they can fund greater amounts of lending.
A similar proposal was made by Germany’s powerful savings bank association, which said banks were being limited in what they could lend by the creditworthiness of companies. “The problem ... can only be tackled with equity help for companies,” said Heinrich Haasis, the association’s president.
The suggestions were made at a “credit summit” convened by Angela Merkel, German chancellor, on Wednesday to try to resolve concerns that banks in Germany – weakened by the credit crunch and relatively undercapitalised compared to those in many other countries – will be unable to fund the revival of the country’s powerful industrial sector.
A bank-led vehicle to invest directly in companies – something like a private equity fund – would have echoes of “Deutschland AG”, the loose system of collaboration between banks and other companies that was cemented by cross-shareholdings.
But it would be aimed less at Germany’s blue-chip companies and more at smaller, family-owned “Mittelstand” industrial companies, which are less able to get capital on international markets and are among the most concerned about a lack of bank credit.
According to participants in Wednesday’s summit, Mr Ackermann said Deutsche Bank was ready to make a substantial contribution – which people familiar with the idea later said could be about €300m – to a fund to provide equity to the corporate sector.
The capital would most likely be in the form of so-called “silent participations”, a hybrid form of equity often used in Germany.
Savings banks also said they were prepared to help with a programme to give companies equity.
A spokesman for the BDI said the industry federation would not comment on Mr Ackermann’s idea. It has previously laid most responsibility for any credit crunch at the door of banks, although it did accept in a policy paper this week that the corporate sector also needed to strengthen its capital base.
One business representative, however, said he suspected the proposal was aimed at deflecting attention away from the banking sector.
“It’s a hot potato game,” this person said, adding that “the capitalisation of companies is one issue but not the most critical one. Many made themselves weatherproof in this respect before the crisis.”
German companies, particularly in the family-owned sector, are seen as relatively thinly capitalised but many also strengthened their balance sheets in the years leading up to the financial crisis, meaning they went into the crisis in better shape.
However Deutsche – which claims to have relationships with 80 per cent of Mittelstand companies – is likely to fear that many be weakened by an extended downturn.
Andreas Schmitz, head of Germany’s private sector banking association, said Wednesday’s talks had been “constructive . . . the suggestions now need to be intensively worked on”. The association has previously favoured government support to revive the market in bank loan securitisation as a means of avoiding a credit squeeze.
Additional reporting by Bertrand Benoit in Berlin