lunes, 12 de agosto de 2013

lunes, agosto 12, 2013

August 9, 2013

In Germany, Little Appetite to Change Troubled Banks

By JACK EWING


FRANKFURTOne of the most battered banking systems in Europe has a history of mismanagement, corruption and politically connected lending, and it has cost taxpayers hundreds of billions of euros.

Is it Italy, Spain or perhaps Greece? No. That description is of Germany’s banking sector.

While the country’s economy is often held up as a model, German banks are among Europe’s most troubled. They required a bailout bigger than the one American banks received, and many are still struggling to recover.

But there is remarkably little discussion about fundamentally changing the structure of the German banking system. On the contrary, Europe’s economic leaders criticize Germany for slowing progress toward unifying the Continent’s patchwork system of bank regulation, an effort seen as crucial to restoring faith in the euro zone and averting future globe-threatening crises. Ailing German banks are also a dead weight on the euro zone economy as it struggles to crawl out of recession.

Germany was actually hit very hard by the financial crisis,” said Jörg Rocholl, president of the European School of Management and Technology, a business school in Berlin. But the debate about the future of banking in Germany is “alarmingly nonintense,” Mr. Rocholl said.

Banks in Germany invested in seemingly every bad asset that came their way, including American subprime assets and Greek bonds. “There is no sense of pride that Germans were especially thorough or prudent,” said Sven Giegold, a German who is a member of the Economic and Monetary Affairs Committee in the European Parliament.

Some 646 billion euros, or about $860 billion, was spent or set aside to rescue German banks from 2008 through September 2012, according to European Commission figures. That is the second-highest bailout in Europe after Britain and more than the $700 billion authorized for the Troubled Asset Relief Program in the United States, of which $428 billion has been spent, according to the Congressional Budget Office.

In one recent example of German banking dysfunction, German authorities indicted Bernie Ecclestone, the chief executive of the Formula One auto racing series, in connection with a $44 million bribe said to have been paid to the former chief risk officer of BayernLB, a so-called landesbank owned jointly by the state of Bavaria and community savings banks.

Mr. Ecclestone, accused of making the payoff in 2006 so that the bank would sell its stake in Formula One to his favored buyer, has said he did nothing illegal.

The landesbanks, typically owned by state governments and local institutions, have a long history of corruption and mismanagement. BayernLB already required a 10 billion euro bailout from state taxpayers, and several other of its former top managers were under investigation for insider trading. Six former top managers of HSH Nordbank, a landesbank in Hamburg, are on trial for charges that include fraud and illegally concealing the bank’s true financial state, including losses on loans to the depressed shipping industry.

Germany’s banking industry has improved its capitalization significantly and is now better off than before the crisis,” said Christopher Pleister, chairman of the German Financial Market Stabilization Agency. He said Germany’s bank restructuring law included strong protections for taxpayers and rigorous oversight. Mr. Pleister said it should be the model for the rest of Europe.

Yet there is little appetite for change in Germany because the banking system is so deeply intertwined with its politics, serving as a rich source of patronage and financing for local projects.

The landesbanks and the country’s roughly 400 local savings banks, known as sparkassen, are controlled by state and municipal politicians. All told, about 45 percent of the German banking industry is in government hands. That is not counting a 25 percent stake in Commerzbank, the country’s second-largest commercial bank, acquired by the federal government in the course of a bailout.

All the parties in Germany are connected. That applies from the Left Party to the F.D.P.all of them,” said Mr. Giegold of the European Parliament, referring to the far left party in Germany and the business-friendly Free Democrats.

Mr. Giegold, the Green Party’s banking expert in the European Parliament, did not exclude his own party from those with a stake in the system.

Other euro zone leaders have accused Germany of dragging its feet on the creation of a banking union to shield its banks from tougher scrutiny by a central regulator based at the European Central Bank. The E.C.B. is supposed to take over that task at the beginning of 2014, but is still waiting for the European Parliament to pass the necessary laws so it can start hiring staff.

German officials say they just want to make sure that reform of bank supervision is done right. “It’s the biggest step since the introduction of the euro,” said Andreas Dombret, a member of the executive board of the Bundesbank, the German central bank. Germany wants to “make it waterproof but not to delay it or derail it,” he said.

Mr. Dombret, who is responsible at the Bundesbank for monitoring stability of the financial system, said German banks remained vulnerable to distressed loans in commercial real estate and shipping. Banks in Germany are also overly dependent on borrowed money, he said, and some need to raise more capital or reduce the size of their financial holdings.

On average, Germany’s largest banks borrow 50 euros for every one of their own, according to Bundesbank figures, a ratio considered dangerously high.

Unlike their counterparts in countries like Spain or Italy, though, German banks have benefited from a strong national economy. They have not had to cope with as many bad home loans and have generally not had trouble raising money to lend to their customers.

While the bank bailout in Germany was the largest in the euro zone in absolute terms, it equaled only 25 percent of gross domestic product. Ireland’s bailout, while smaller, equaled more than three years of economic output and effectively bankrupted the economy. Unlike many of its neighbors, Germany could afford its banking crisis.

“We have seen quite positive changes in the German banking system because the German economy moved positively,” Mr. Dombret said.

Representatives of the publicly owned banks argue that, despite what critics say, there has been significant change in the German banking system since the financial crisis.

Under pressure from European Union authorities, the landesbanks have abandoned ambitions to compete in international investment banking and drastically reduced their financial holdings. WestLB, a landesbank in Düsseldorf that was once the country’s third-largest bank over all, shut down altogether last year following losses tied to American real estate.

“Some landesbanks had to suffer criticism for mistakes during the financial crisis, sometimes with justification,” Gunter Dunkel, president of the Association of German Public Banks, said in an e-mail. “The fact is that the banks have not only learned from their mistakes but also made the right corrective measures.”

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