Germany stands at an interesting juncture. Chancellor Angela Merkel has impressed with her time in office so far, but the honeymoon is over and she now needs to tackle pressing economic reforms that will once again put Germany on a growth trajectory and reduce unemployment levels of close to four million. Business confidence is slowly picking up as companies, rehabilitated after years of balance sheet restructuring and deleveraging, are looking once again at acquisition opportunities to boost output and efficiency. This has been a boon for investment bankers and lenders, who have been starved of opportunities in recent years. Given the size of the economy, Germany already provides a sizable chunk of the investment banking fee pool, but financiers are optimistic about their near-term ability to garner a share of an increased wallet.
Advisory bankers, syndicated bank lenders, as well as corporate bond and equity underwriters are all seeing uplift in business volumes. The equity capital markets recovery, which began in 2005, has a look of durability about it. This doesn't mean that every ECM deal that has come to market has worked; it does mean, though, that investors are tending to look once again at individual company stories and are buying based on specifics as opposed to trying to game the market on price.
For domestic banks, competition is fierce as international houses increase their efforts to originate German business. While competition at the top end of the corporate spectrum has been tough for years, international shops are focusing their efforts increasingly on the middle market, which is starting to take a more progressive approach to funding and business development.
Long the preserve of domestic house banks, the Mittelstand is starting to gain an appetite for more sophisticated investment banking products and is no longer necessarily being constrained by traditional products and relationships. Foreign houses have increased their on-the-ground presence in Germany, while coverage from London has also increased. The hunt for experienced German corporate financiers and capital markets bankers has intensified and there has been an increasing occurrence of team moves as firms jostle for position.
The increase in business volumes and the new round of foreign competition comes at a fascinating time for the leading domestic banks. In the past few months, Italy's UniCredit has acquired HVB, Dresdner Bank has integrated its corporate bank with Dresdner Kleinwort Wasserstein, while Commerzbank slimmed down its securities business but has acquired Eurohypo to boost its domestic footprint.
German banks are focused more intently on serving clients and fighting for a share of their home market. They have significant advantages, which they are intent on turning to business advantage.
It will be fascinating to watch the new competitive dynamic unfold.
IFR's annual special report on Germany report covers the principal areas of capital markets in Germany, including syndicated lending, leveraged finance, covered bonds and securitisation. It also looks at the Mittelstand's new approach to financing, and covers the continued interest among Germany retail investors in structured products and derivatives.