Germany's Merging Banks
Will Bigger but Fewer Mean Better?
By Wednesday, the outcome was already clear. The terms of the contracts had been negotiated, the documents for the supervisory board meeting drafted, the press releases written and the media prepared by means of carefully controlled leaks.
Frank Appel, 47, was satisfied. Appel has been the head of Deutsche Post for seven months, after taking the place of former CEO Klaus Zumwinkel, who was brought down by the Liechtenstein tax evasion scandal. And even after only several months at the helm, it already looked like he had taken care of a problem he inherited from his predecessor: the sale of Postbank to Deutsche Bank.
The negotiated price was respectable. At €57.25 ($83) a share, it was 20 percent higher than the current share price. And the buyer was practically made to order for Appel's major shareholder, the German government, which still owns 30 percent of Deutsche Post's shares. For quite some time, the government has been looking to have Postbank merge with a major German bank, as part of a sought-after restructuring of the German banking sector.
Everything seemed to be going smoothly, that is, until Wednesday, Sept. 10, just two days before the scheduled meeting of the supervisory board at which the board was to give the deal its blessing. But then, early that evening, Appel received a fax from the Spanish bank Banco Santander. The Spaniards, who had also been in the running as a potential Postbank buyer, were now announcing their intention to increase their bid once again.
The news set off an uproar at Deutsche Post headquarters in Bonn. Appel had the new offer carefully examined by lawyers and stock-market specialists. The outcome of that analysis, Post officials say, was clear: The Spanish offer was nonbinding. Deutsche Bank CEO Josef Ackermann, on the other hand, had already given Appel his consent to the deal on the previous day. As a result, last Friday, the supervisory board approved the sale, in two tranches, to Frankfurt-based Deutsche Bank.
Merger Mania
For the second time in three weeks, a German bank has set its sights on a competitor. In late August, Commerzbank acquired Dresdner Bank from Munich-based insurance giant Allianz, also in a two-stage deal in order to avoid devoting too much capital to the takeover.
And also for the second time, German bidders have prevailed, even though foreigners had submitted attractive offers in both cases. If Postbank had been sold in its entirety to Santander, both Deutsche Post and the remaining shareholders would have benefited. If Dresdner Bank had been sold to the China Development Bank, Allianz would have been paid entirely in cash, instead of receiving the bulk of its payment in the buyer's stocks.
Both solutions are in the interest of the German government, which has been voicing its concerns about the competitiveness of German banks for years. Although participants have reported that there was regular contact between Bonn and Berlin during the negotiations, Deutsche Post CEO Appel insists that "there was definitely no pressure from Berlin."
In any event, the members of Chanceller Angela Merkel's coalition government are extremely pleased with the outcome. They wanted Postbank to remain in German hands, and it's no surprise that Ackermann did as well. "It would not have been pretty," Ackermann said Friday, "if a foreign competitor had gotten in on the deal."
Size Matters
German banks have long been considered too small by international standards. Not a single German bank ranks among the world's 25 largest. Even Deutsche Bank, which had one of the highest market capitalizations worldwide in the 1980s, has sunk in the rankings.
"Banks need a critical mass, or else they face the same fate as the British automobile industry," says Michael Junker, a consultant to financial service providers with the management-consulting firm Accenture. Cars may still be manufactured in Great Britain, but decisions about their production are made in other countries.
This could also happen to Germany's major banks, all of which have been in acute danger of being taken over in recent years. It was only their modest domestic profits and, more recently, the crisis in the financial markets that protected them from foreign takeover.
Because of these deficits, there have been discussions for years about the need for consolidation in the industry, including mergers and the establishment of new, competitive structures. But almost nothing has actually happened.