German bank buyouts: kulturschock
A private equity solution is not without problems
Germany’s public banking system is having a private equity moment. For years, the Landesbanken— regional lenders co-owned by federal states and local savings banks — have been subject to the whims of local politicians and groups. That is changing.
Cerberus, Apollo and at least one other private equity group have been circling NordLB, which has €158bn in assets. A large stake in the under-capitalised lender is up for sale. Helaba, another Landesbank, has dropped out of the auction, according to local press reports this week.
A US private equity buyer would establish a trend. Before Christmas, buyout groups including Cerberus and JC Flowers closed the acquisition of HSH Nordbank, a €61bn-in-assets lender, from its previous owners, the states of Hamburg and Schleswig-Holstein.
Under private ownership, Landesbanken would cut costs to fund expansion. Free from EU-imposed restrictions, HSH will push into commercial property lending beyond Germany. Mergers are clearly an option in a fragmented sector.
Politicians and local savings bank overlords have only themselves to blame for losing control. For decades, they have resisted the consolidation that would have raised returns and bolstered financial strength. The trade-off was secure jobs for locals.
HSH and NordLB were hammered by the shipping downturn following the financial crisis. NordLB took a €2bn net loss in 2016. HSH turned to the European Commission for an asset guarantee. Now political will to support these lenders is running out.
State-backed banks are at odds with EU rules on state aid. Private capital can give banks stability. Cerberus successfully floated Austrian bank Bawag in 2017 after a decade of cost-cutting and the 2017 acquisition of Stuttgart-based Südwestbank. Hard to accuse the buyout group of short-termism.
The incursion of the buyout merchants into Germany will not be frictionless. Protectionism and nativism are on the rise in the country, as elsewhere. More prosaically, switching banks from public to private deposit insurance is a slog. But German banking badly needs shaking up. Buyout funds have the tenacity to do it.