Another year means another chance for Germany to slough off its recent dismal record and make a positive impression in the capital markets. That’s the theory, and bankers have certainly started 2005 in a more upbeat mood. Then again, that was the story last year, so is there any more reason for optimism now? Economically, the country has been afflicted by a combination of contracting growth, sluggish domestic consumption and rising unemployment. Add in high oil prices and a strong euro, and the

In the past, German banks have been slow to sort out their bad debts, preferring to restructure and extend a loan than foreclose. Over the last two years however, Germany’s bad loan market has seen momentum increase as commercial banks look to improve their balance sheets, free up regulatory capital held against bad loans, and cut costs. Germany has the largest stockpile of bad loans in Europe, and one of the largest in the world. Value estimates for Germany's NPL market range from €160bn to €30

At the start of 2004, bankers were confident that sentiment was improving, that there was a strong pipeline of IPOs, and that rising equity markets would encourage companies to use equity as a source of funding. However, many of the expected deals fell foul of an increasingly sour market, and Germany disappointed. One problem was that investors and the local media combined to push down valuations. “Part of the problem in Germany was that fund managers were quoted in the press with at times very

The most talked about German user of the swap market is the federal government through Finanzagentur, its capital markets agency. The agency announced in 2002 that it planned to use swaps to achieve significant annual savings on the country’s debt portfolio. In the first year, the Ministry of Finance granted the Finanzagentur a ceiling of €20bn of notional swap volume to cover its swap activities. That figure was increased to €40bn in 2003, doubled again in 2004 and has been maintained at the €8

Excluding deals with undisclosed pricing, the year 2000 yielded 50 internationally syndicated loan issues totalling US$42.5bn. By 2004, that figure had jumped to 84 deals and just over US$95bn, according to data from Thomson Financial. That growth has seen Germany metamorphose from a syndications backwater to one of Europe’s most hotly contested markets, and the trend shows no sign of stopping. “Germany is a growth market for the syndicated loans product,” said Dietmar Stuhrmann, head of loan sy

Traditionally, German companies have relied on cheap loan financing from local, state-owned banks. According to Goldman Sachs, 71% of corporate Germany's financing still comes from bank loans, while the capital markets account for only 29%. That compares with the UK, where only 10% of capital market financing comes from bank loans, or the US where the figure is 18%. But the removal of State guarantees for Landesbanks in July this year, coupled with the more risk-sensitive capital requirements im

The economic tribulations of Germany are notably apparent in the banking sector, where domestic banks are estimated to be creaking under up to €350bn of non-performing or sub-performing assets. The political sensitivity of this problem has resulted in a culture of denial that domestic lenders are only just beginning to confront. One man's implosion is another's opportunity, however, and equity and debt financiers are lining up to take positions. Furthermore, while many Germans have lost their ap

The basic point is not generally challenged, namely that “all the Landesbanks are going to suffer when their guarantee is removed,” as summarised by Paul Fenner-Leitao, European bank analyst at Barclays Capital. “These institutions, which were never really competitive, are entering a market that's already not profitable. Also, if the German banking system was to be rebuilt now, Landesbanks would probably not exist in their current form," he added. The topic is not new, and market participants ha

The course of German investment banking has not been smooth in recent years. Ever-increasing competition has led to challenges for all European banks. The greater penetration by the North American houses and the effective dissolution of borders caused by the advent of the euro has made the landscape much harsher, as well as offering opportunities in new markets. This has eradicated the closed-shop view of banking along national lines. (See Loans article in this report for how this is affecting o

The year 2004 started positively for the German economy, with healthy growth mainly driven by robust contribution from net exports (+1.2% in 1Q04, see table 2), while domestic demand remained the Achilles heel of the economy. As the year progressed, however, and global demand waned, net exports became a drag in the second half, hampering growth significantly in 3Q 04 (–1.6%). With domestic demand failing to offset the shortfall in external demand, the German economy was back in the doldrums in t