Comparison of the Most Important
German Commercial Banks

by: Andreas Vester

Table of contents

ABSTRACT 4

1. INTRODUCTION 5

2. DEUTSCHE BANK AG 8

2.1. OVERVIEW 8
2.2. OPERATING BUSINESS EVALUATION 8

3. COMMERZBANK AG 10

3.1. OVERVIEW 10
3.2. OPERATING BUSINESS EVALUATION 10

4. ALLIANZ GROUP (DRESDNER BANK) 12

4.1. OVERVIEW 12
4.2. OPERATING BUSINESS EVALUATION 12

5. HYPOVEREINSBANK AG 15

5.1. OVERVIEW 15
5.2. OPERATING BUSINESS EVALUATION 15

6. COMPARISON BETWEEN GERMAN AND U.S. COMMERCIAL BANKS 17

7. ADVANCED ANALYSIS 23

7.1. ECONOMIC REASONS FOR THE RELATIVE UNDERPERFORMANCE OF GERMAN COMMERCIAL BANKS 23
7.2. MERGERS & ACQUISITIONS 24
7.3. GERMAN COMMERCIAL BANKS AND ASSET MANAGEMENT 26

8. SUMMARY & CONCLUSION 28

REFERENCES 29
 

ABSTRACT

The German banking industry is a highly regulated market with over 2,200 banks¹. These banks are not equal at all. On the one hand, there are private owned commercial banks; on the other hand there exist savings banks, so-called ‘Sparkassen’, as well as ‘Genossenschaftsbanken’ that are equal to credit unions in the U.S. The German banking industry is just at the beginning of a structural change. In the recent past there have been a couple of mergers and bankruptcies within the banking industry. But a big change did not happen yet. In this paper we analyze the four biggest and most important German commercial banks – Deutsche Bank, HypoVereinsbank, Commerzbank, and Dresdner Bank – and their standing within the international banking industry. We examine the profit situation, the credit management, the worldwide role in asset management, as well as mergers and acquisitions during the past few years. Additionally, we expounded possible structural changes and chances within the German banking industry in the near future.

1. INTRODUCTION

The German banking industry is a large market of over €6,600 billion². 2,200 banks that are employing around 750,000 people as of October 2004 share this market. Compared to 3,280 banks as of January 1999 and 2,575 banks as of December 2001 it shows a declining trend in the number of banks. ³ The German banking industry is mainly divided in commercial banks, savings banks, and credit unions. There exist 489 local operating savings banks as of December 2003, which are owned by municipals. These savings banks belong to the ‘Sparkassen-Finanzgruppe’. Besides that the ‘Sparkassen’- Group mainly consists of 11 building and loan associations (‘La ndesbausparkassen’), 36 public insurance companies, and 12 ‘Landesbanken’. The ‘Landesbanken’ are similar to the savings banks, but they are owned by states and they are operating nationally as well as internatio nally⁴. The market share in lending and deposits of the ‘Sparkassen’ -Group equaled 40% in 2002⁵. The strength of the ‘Sparkassen’ consists in its presence in almost every city. ‘Sparkassen’ are offering a wide range of services to everybody, especially to low wage-earners. 393,000 emplo yees are working in 22,600 branches with total assets of €1,000 billion making the savings banks a strong competitor for commercial banks⁶. With the help of the savings banks, local go vernments are able to control economic policy tasks of the banking industry. The liabilities of the ‘Sparkassen’ are guaranteed by the owner and as a result by the German tax payers. For this reason the default risk of a ‘Sparkasse’ is almost zero. As long as the municipal covers his savings bank, it cannot fail. The deposits are also insured by the savings institutions insurance fund (‘Sicherungssystem der Deutschen SparkassenFinanzgruppe’). This is a very important advantage for savings banks, if they issue debentures. For the reason of the public guarantee the ratings for ‘Sparkassen’ are always excellent and therefore these institutions are able to borrow money for a lower interest rate than they would be able without the public guarantee. This covering practice of the German government can be interpreted as unfair towards private owned competitors and is therefore que stionable. For this reason, the European Competitive Commissioner launched a proceeding for illegal subsidies at the Supreme European Court of Justice.⁷

At the end of 2003 there existed 1,392 credit unions (‘Volks- und Raiffeisenbanken’ or ‘Genossenschaftsbanken’) in Germany with more than 15 million members. The total amount of assets exceeded €560 billion at this time. Comparable to American credit unions ‘Volks- und Raiffeisenbanken’ are not-for-profit depository institutions which are mutually organized and owned by their members (depositors). Member deposits are used to provide loans to other me mbers and earnings from these loans are used to pay interest on member deposits. The market share of the credit unions equaled 18% in deposits and 14% in lending as of the end of 2002 ⁸. The deposits are insured by the ‘Bundesverband der Deutschen Volksbanken und Raiffeisenbanken’ (BVR) which has also the respons ibility to take preventive as well as restore measures regarding credit unions.⁹

The third important pillar within the German banking system contains commercial banks. There existed 252 of this so-called ‘Kreditbanken’ in August 2004. The overall market share of commercial banks equaled 28.5% in deposits and 24.9% in lending as of December 2002¹⁰. The total amount of assets equaled €1,800 billion. Within the commercial banking sector there are four big banks (‘Großbanken’) which have alone a total amount of assets exceeding the €1,000 billion range.¹¹ These big banks are Deutsche Bank, Commerzbank, HypoVereinsbank, and Dresdner Bank, which are analyzed in more detail in the following chapters. In general, German commercial banks are offering any kind of financial service such as brokerage, deposits, lending, credit cards, trust banking, funds, and mortgage loans. Deposits in commercial banks are insured by the commercial banks insurance fund (‘Einlagensicherungsfonds des Bundesverbandes deutscher Banken e. V.’). This insurance covers up to 30% of the liable equity capital of the bank per customer. For instance, for Deutsche Bank AG deposits are insured up to €5,916,381,000 ¹² per person. This insurance covers time deposits, demand deposits, savings deposits, but not bearer bonds issued by Deutsche Bank.

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1 Cp. http://www.bundesbank.de/stat/download/bankenstatistik/S131ATIMB2425.PDF

2 Cp. http://www.bundesbank.de/stat/download/bankenstatistik/S131ATIMB2425.PDF

3 Cp. http://www.bundesbank.de/stat/download/bankenstatistik/S131ATB10607.PDF

4 Cp. http://www.sparkassen-finanzgruppe.de/owx_medien/media0/71.pdf

5 Cp. http://www.sparkassen-finanzgruppe.de/owx_medien/media0/69.pdf

6 Cp. http://www.sparkassen-finanzgruppe.de/owx_medien/media0/62.pdf

7 Cp. http://www.sparkassen-finanzgruppe.de

8 Cp. http://www.sparkassen-finanzgruppe.de/owx_medien/media0/69.pdf

9 Cp. http://www.bvr.de

10 Cp. http://www.sparkassen-finanzgruppe.de/owx_medien/media0/69.pdf

11 Cp. http://www.bundesbank.de/stat/download/bankenstatistik/S131ATIMB2425.PDF

12 Cp. http://www.bdb.de/verband/index.asp?channel=183210