FT.com / Columnists / European View - Germany’s smaller banks – the time is ripe for a cull

FT.com / Columnists / European View - Germany’s smaller banks – the time is ripe for a cull

Germany’s smaller banks – the time is ripe for a cull
By Paul Betts

Published: September 5 2007 18:22 | Last updated: September 5 2007 18:22

Hermann Simon, the management consultant, will soon release a paean to the small and medium-sized manufacturers that make up the backbone of Germany’s economy. “Hidden Champions of the 21st Century” highlights how, in an age of globalisation, German engineering companies have surprisingly become even more competitive.

With the current financial crisis badly affecting German banks, it raises the question as to why Germany can produce world-beating manufacturers and world-losing banks. Furthermore, why is having hundreds of engineering groups seen as a good thing and hundreds of banks – as Germany has – a bad one?

Simon suggests part of the answer lies in focus. The German Mittelstand – the famous small companies that employ more than half of blue-collar workers – operate in highly specific niches where there is little competition. That makes their local markets small. But globalisation, with all the countries it opens up, makes that market large again.

Banks have a different problem. The local Sparkassen or Landesbanken (saving and regional banks) have a small, geographically defined market. But they have no expertise that is exportable and little desire to leave their home regions, even for mergers. Even the largest of banks, with the possible exception of Deutsche Bank, have struggled outside the country, as shown by the expansions and then contractions of Commerzbank and WestLB.

Perhaps it is too late for German banks. But paradoxically they could well have the best opportunity in decades to become more competitive. The credit crunch has revealed the underlying problems in many banks’ models. There will never be a Mittelstand of banks, so the time is ripe for Sparkassen and Landesbanken to put their local pride aside and consolidate as quickly as possible.


Dogfights at Airbus


The new Airbus A380 super jumbo has acquired an enviable image as the latest toy of the international jet set. Roman Abramovich, the Russian billionaire and owner of Chelsea football club, on Wednesday flatly denied a report in the French press that he is the mystery individual to have placed an order for the $300m-plus (€219m) jet.

Such speculation, sparked by Airbus’ revelation of the anonymous order at this summer’s Paris air show, has certainly added a touch of glamour to the European aircraft manufacturer after two years of internal management and industrial turmoil. But nobody should be fooled.

This summer’s compromise between the French and German shareholders – blessed by their respective governments – already appears to be fraying. The deal to streamline the governance structure of EADS, the Airbus parent, may have eliminated some difficulties, but at the same time it may have provoked new ones.

The agreement to create just one EADS chairman, one EADS chief executive and one Airbus chief executive was supposed to help put an end to the infighting between the German and French camps and other internal rivalries that has undermined the European group.

Unfortunately, the infighting does not seem to have stopped. Indeed, it is continuing at Airbus, where Tom Enders, the new German chief executive, appears to be locked in a bitter power struggle with Fabrice Brégier, the French chief operating officer who had also been vying for some time for the top Airbus job.

So the sorry saga goes on at a time when both Airbus and EADS need strong leadership to resolve enduring industrial problems and counter the threat from rival Boeing. Sure, the Boeing 787 may be delivered at least six months late. But this is neither here nor there compared with the A380’s two-year delay.

More worrying, Boeing appears to be preparing an assault on another front by launching a new generation single-aisle aircraft to replace the Boeing 737. It is studying an innovative engine developed by Pratt & Whitney to power the new aircraft that would challenge the traditional Airbus money-spinner, the A320 and its derivatives.

Airbus not only has to fix the remaining problems on the A380, but it is only just embarking on the development of the A350 to compete against the Boeing 787. Airbus and EADS believed they had a bit more time before they had to address the replacement of the A321. And remember, they have not yet even sorted out with their shareholders how to pay for the A350, never mind a new A320 programme.

Faced with such challenges, decisive leadership is crucial. Unfortunately, there are already mutterings that the highly regarded Louis Gallois, the new EADS sole chief executive, is spending too much of his time trying to build bridges and consensus between the French and German camps rather than taking tough and unpopular decisions with both the French and Germans.


european.view@ft.com

Copyright The Financial Times Limited 2007