1. finance
2. bank

Yearbook 2011
financial centre model
Framework for the Financial Centre
HOW TO
Perspectives and Trends
Financial Centre Infrastructure
Building Blocks of a Financial Centre
Contents
W e R e p r e s e n t t h e F i n a n cia l C e n t r e F r a n k f u r t
4Greeting
34
Bank Financing: Securing the Future
By Markus Beumer
38
Paving the Way for Change
By Herbert Hirschler
6Frankfurt – Partner and Consultant
for Emerging Financial Centres
By Dieter Posch
40
Sound Finances for an
Attractive Financial Centre
By Uwe Becker
9The Financial Centre’s Yellow Pages
By Lutz Raettig
42
By Volker Bouffier and Petra Roth
Regular Members
10
F i n a n cia l C e n t r e M od e l
Sustaining Members
„It won‘t quite work without ethics.
We can‘t regulate everything.“
Interview with Wolfgang Schäuble
F i n a n cia l C e n t r e
I n f r as t r u c t u r e
44
Hubs of Networked Financial Centres
By Frank Gerstenschläger
48Eco-friendly IT from the Cloud
By Hermann-Josef Lamberti
49
Frankfurt’s Edge in Digital Infrastructure
By Peter Knapp
50
Safety Through Transparency
By Stefan Mai
P e r sp e c t i v e s a n d T r e n ds
18
Private Banking Is Here to Stay
Interview with Herbert Hans Grüntker
and Hans-Joachim Tonnellier
22
Private Banking Has to Be Value-oriented
Interview with Lars Hille
52
Modern Auditing Needs to Assess Future Risks
By Philipp Turowski and
Claus-Peter Wagner
24
Sights Set on the Next Generations
Interview with Emmerich Müller
54Europe Needs a Rating Agency
By Markus Krall
26
Middle-tier Companies Making Their Way
to the Capital Markets
By Jochen Grossmann
56Europe Without Borders –
Also for Payment Transactions
By Michael Steinbach
28
Asset Management – Made in Germany
Interview with Wolfgang Matis and Thomas Neiße
58
Our Financial Centre Is Enhanced
by Transparent Information
By Edmund J. Keferstein
60
Imprint
32Location and Quality: Back to True Values
By Johann Berger
Version: 03/06/2011
Solvency II: Supervision Caught in the Crossfire
Between Competition and Stability
By Wolfram Wrabetz
Springboard to Germany and Europe
By Gertrud R. Traud and Stefan Winter
F r am e wo r k fo r t h e F i n a n cia l c e n t r e
12
4
greeting
greeting
Ladies and Gentlemen,
5
Ladies and Gentlemen,
We all know that the financial economy that has clustered around
national and interna-
The financial economy has recently put some turbulent times be-
Still, it takes more than
Frankfurt and the Rhine-Main region is extraordinarily impor-
tional level. The House
hind it. This was the case worldwide, but also here in Frankfurt,
that to regain lost trust.
tant for the State of Hesse. The Hessian government is there-
of Finance, as an ex-
where, besides the European Central Bank, 300 private bank-
As far as the public is
fore determined to continue to develop the Frankfurt financial
ample, is intended to
ing firms, 160 of which are foreign, and numerous related service
concerned, the finan-
centre, which is the hub of European monetary policy. Our fi-
promote close collab-
providers are resident. The past two years must not have been
cial economy will only
nancial centre is respected on account of its stable economic
oration between busi-
easy in this sector, especially given the fact that the actual finan-
pass muster, if, in the
and social structures, which provide reliable legal frameworks,
ness and science. All
cial crisis was trailed by a severe crisis of trust among customers.
course of its activities,
outstanding infrastructure as well as great potential in terms of
these strong points
customers and business. Frankfurt‘s strong points include its
that make up the
An entire branch of industry, previously widely respected for its
not only to business-
qualified employees, its strong economy, its powerful capacity
Frankfurt financial centre, converge in great concentration at
solidarity, was suddenly plunged to the very bottom of the scale
related aspects, but also to the proper functioning of the national
for innovation and its excellent infrastructure – the key factors
the House of Finance, which supports us in our mission. Frank-
of social prestige. The city of Frankfurt suffered along with the
economy as a whole. That is, if it has a human face. If profit is no
in guaranteeing the success of the Rhine-Main region. One top
furt‘s strengths include things like business expertise, excellence
financial industry. How could a crisis of such proportions sweep
longer looked upon as being purely self-serving. Otherwise, never
priority in the state of Hesse‘s governmental policy is to secure,
in the sciences, and the basic infrastructure made available by
over the most important financial centre in continental Europe
again will government be able to channel sums in the b
­ illions to-
foster and expand this business location.
the federal government in terms of buildings and staff, but also
without leaving its mark? This makes me all the more pleased to
wards resolving a banking crisis – any government that did would
private sponsors, without whose commitment this institution
hear in recent months that many institutions – in a good many
most likely be digging its own grave.
Frankfurt is not only attractive as a centre of finance. Firms in
would never have been able to exert such influence outside the
cases thanks to state assistance – are already on the rebound,
other sectors, like telecommunications, nanotechnology, phar-
region. I am truly delighted at how successfully all these posi-
or even positively bursting with vitality. The balance sheet figures
The very fact that the “Frankfurt Main Finance” association has
maceuticals or the automobile industry, conduct highly suc-
tive factors have come together here in Frankfurt.
are sound, in many cases far exceeding what could have been
been in existence for three years now, makes me very optimis-
hoped for a year ago.
tic that all this can still be accomplished. This alliance, which, in
cessful operations here. Almost a quarter of Hesse‘s economic
it pays close attention
addition to the municipality of Frankfurt and the Hessian govern-
power stems from this city. No other city in Germany enjoys
We can build our joint efforts on a sound foundation. Our com-
such prominence within a federal state. Frankfurt owes this eco-
mon goal is to claim Frankfurt‘s rightful place as a top-notch
This is also good news for Frankfurt, since the city is more tightly
ment, comprises so many financial institutions, and also financial
nomic power to the particular combination of industries it hosts:
­fi nancial and research centre among international competitors.
interwoven with its financial centre than any other in Germany
service providers and representatives of academia, is united by
The combination of its financial centre, international airport and
With these goals in mind, the decisive factor will be for us to
or on the European continent. We have the financial industry to
one great goal: Enhancing the Frankfurt financial centre.
­reputation as a trade fair location creates a set of conditions not
­attract and hold onto the best brains in the business, in order to
thank for a great deal of our cosmopolitanism. Frankfurt’s finan-
found elsewhere in Germany. The opportunities for the Rhine-
secure qualitative growth – growth with potential going forward.
cial economy makes it a magnet for highly qualified employees.
This goal also happens to be the title you have chosen for your
Main region do not solely concern high-power finance, but the
Frankfurt should not only be developed as a hub of the finan-
Work done in the service of the financial sector at Frankfurt’s
yearbook. This is naturally all about the future importance of this
German economy as a whole. Nevertheless, this prominent po-
cial industry, but also as a key agent in the global effort to reg-
education and research facilities has made the city into a cen-
city to the global economy. However, I see this as another sign
sition is also a prerequisite for ensuring that our financial indus-
ulate the financial markets. Here in the State of Hesse, we feel
tre of innovation for an industry whose reach spans the globe. In
that – as global as the reach of an industry may be – it actually
try and economic system are supported by broad consensus
that financial players and government policy makers should act
providing loans, banks help our economy shift into higher gear
does make a difference where you live or work. Just by mak-
in our society.
in unison. The structures we have here at our disposal have the
and provide start-up financing for our enterprises. They help us
ing this clear, a great deal of the trust that has been lost could
necessary potential. We are in an excellent position to embark
shape the future.
be regained.
In order to preserve and expand the strengths of this location,
on this mission. Frankfurt today affords foreign and domestic
the Hessian State Government can be counted on as a reliable
players the best possibilities for pursuing their economic activi-
partner of the financial economy in making decisions at both the
ties successfully – and the same will hold true tomorrow.
Volker Bouffier
Petra Roth
Minister-President of Hessen
Mayor of the City of Frankfurt am Main
F inancia l centre m o d e l
7
Frankfurt – Partner and Consultant
for Emerging Financial Centres
By Dieter Posch
Financial centres in the so-called emerging markets are gaining in importance worldwide. This presents great business opportunities for the Frankfurt financial centre. Outside Germany, however, only
­Frankfurt‘s traditional strong points are well-known. A comprehensive marketing approach provides
a systematic overview of services available and facilitates initial business contacts – particularly with
­middle-tier companies.
After remaining relatively stable during the crisis, now is the
Moscow likewise avails itself of the know-how of academ-
time to participate in the global upturn: This is currently one
ics in Frankfurt. Conditions are favourable for expanding co-
of the great challenges facing the Frankfurt financial centre,
operative projects with other financial centres. In this regard,
given the particularly fast pace of economic development in
many foreign contacts already have a firm concept of what
the emerging markets. New financial centres are gaining in
the Frankfurt financial centre has to offer them. When ask-
importance: Two years ago, for example, the C
­ hinese city of
ing visiting experts about the image of the Frankfurt financial
Shenzhen was not even included in the Global ­Financial Cen-
centre, or inquiring at international conferences, the answers
tres Index (GFCI); it now regularly ranks among the top po-
are the same from Riyadh to São Paulo: The German finan-
sitions. Nonetheless, we do not perceive the momentum in
cial metropolis represents stability and quality work; tech-
these emerging financial centres to be threat for the Frankfurt
nological leadership in payment transactions; r­eliable, fully
financial centre – quite the opposite: Frankfurt stands to profit
­integrated stock exchange trading; and, last but not least,
from it, by positioning itself as a reliable and ­knowledgeable
sound monetary policy.
partner for setting up financial centres in the emerging markets.
Without a doubt, these advantages are among our financial
Know-how from Frankfurt respected the
centre‘s significant competitive factors, and it is not for noth-
world over
ing that central bankers from all over the world are often ed-
Frankfurt already has a great variety of ties to emerging finan-
ucated in Frankfurt nowadays. Yet the firmly anchored con-
cial centres, as can be gleaned, for example, from its cooper-
cept of the services Frankfurt offers also has a flip side to it:
ation with the city of Moscow. As a case in point, our partners
Many of the financial centre‘s strong points remain obscure
there are working on establishing a scientific risk management
to p
­ otential business partners. This particularly applies to the
institute set up along the lines of the Frankfurt Institute for Risk
great number of middle-tier companies in the financial sec-
Management and Regulation (FIRM) set up by Frankfurt Main
tor, who often provide outstanding service in their respective
Finance. In putting together their own financial centre index,
niches, and whose specialized knowledge could be of
8
F inancia l centre m o d e l
F inancia l centre m o d e l
The Financial Centre’s
Yellow Pages
Custodian
Exchange
By Lutz Raettig
special interest to foreign business partners. These niches
would preferably link services on ­offer to s­ pecific companies.
range from risk management to virtual datarooms, from cloud
The Hessian Ministry for the Economics has initiated a sys-
Certain strong points of the Frankfurt financial
computing to certificate rating.
tematic process in this context.
centre are well-known, yet many remain obscured.
Bringing Frankfurt’s advantages out into the open
9
Card
Services
Private &
Consumer
Banking
Insurance
Transaction Serv.
Government &
Development
Finance
Corporate
Banking
Central
Bank
Audit
Cataloguing competencies and marketing
The “Financial Centre Model”, which is now available, and
in a comprehensive way and using them to attract
them better
which was developed by Frankfurt Main Finance and Roland
new business partners is what the financial cen-
The Frankfurt financial centre has set itself the goal of exploit-
Berger Strategy Consultants and supported by the State of
tre model and its database of companies are for.
ing its own potential still further and marketing it even more
Hesse, is intended to provide a clear review of services
efficiently. The groundwork has already been laid in this re-
offered at the financial centre. It describes in detail the key
Who has not heard of the Yellow Pages? From A to Z, from
gard: Intensive discussions with emerging financial centres
business areas, relationships and interdependencies between
automobile mechanics to the local zoo, they help us master
all over the world, for example with Moscow and China have
individual players and illustrates the relevant value chains. The
our daily lives. Yet where to turn to for support in develop-
already been underway at the Frankfurt financial centre for
objective of the model is to grant foreign partners easy ­access
ing or improving a financial centre, or even for designing one
years. The Hessian State Government expressly welcomes
to suitable cooperation partners at the Frankfurt financial cen-
from scratch? Here, Frankfurt holds the answer. With the help
these contacts between financial centres. It regularly makes
tre. This is the way to effectively provide support for local
of the Financial Centre Model, all the players at the financial
these high-end platforms for dialogue available in its own
­financial sector companies in establishing initial business con-
centre are mapped out and registered along with their busi-
­activities like economic delegation tours. The plan is to fur-
tacts. It is particularly helpful for middle-tier firms, who often
ness models and ties to other players. At the centre of the
All the sections in the model comprise three levels. At the
ther intensify the connection between high-class discussions
do not run their own offices in the respective partner finan-
model stands the central bank, which as a source of liquidity
first level, the market segments themselves are shown along
and specific initial business contacts in the future. This
cial centres, and who therefore seldom have the necessary
makes the financial system able to function in the first place.
with their mutual interactions. On a second level, the model
will require and exploit the usefulness of a sys-
contacts at their disposal locally. And this kind of concrete
Regulation and consumer protection are likewise crucial to
shows the respective value chain. And at the third and final
tematic and complete catalogue of the financial
support ultimately not only gives greater impetus to the Frank-
the system as a whole in that they provide the required de-
level, specific services are described along with relevant
centre‘s strong points, which at the same time
furt financial centre, it also means sustained enhancement of
gree of stability.
companies, information on products and contact details.
Investment
Banking,
Trading &
Capital
Markets
Informat.
Providers
Real Estate
& Mortgage
Finance
Asset
Management
Consulting
Rating
R&D
IT
Education
Transport
Telecomm.
People
Lifestyle
The requisite data pool is currently being complied: At www.
the entire Rhine-Main economic zone.
All the elements of the financial centre at a glance
frankfurt-main-finance.de/datenbank interested companies
Grouped around these elements are seven market segments:
will find information on how they can place an entry in the
“Private & Consumer Banking”, “Government & Development
database. As a result interested foreign partners can browse
Finance”, “Corporate Banking”, “Real Estate and Mortgage
services on offer in a purposeful way – and look up who to
Dieter Posch is Minister of Eco-
Finance”, “Asset Management”, “Investment Banking, Trad-
contact. This also facilitates the efficient planning of delega-
nomics, Transport, Urban and Re-
ing & Capital Markets”, and “Insurance”. These market seg-
tion tours and visits.
gional Development of the German
ments in turn avail themselves of a series of services. These
State of Hesse.
services span everything from research and development to
payment transactions to security deposits. Last but not least,
Dr. Lutz Raettig is the Spokesman for
the model also captures support infrastructure, such as IT in-
the Executive Committee of Frankfurt
frastructure, education and training, or telecommunications.
Main Finance and Chairman of the Su-
For example, nowhere near everyone knows that Frankfurt is
pervisory Board at Morgan Stanley Bank
home to ­Europe’s largest internet exchange point (in terms
AG in Frankfurt. He is furthermore a Mem-
of throughput).
ber of the Frankfurt am Main City Council.
FINANCIAL CENTRE MoDEL
FINANCIAL CENTRE MoDEL
11
Frankfurt am Main has more to offer than merely a
Helaba Landesbank Hessen-Thüringen in collaboration with
Central Bank all have their headquarters in the Frankfurt finan-
lively banking community and quality of life. Thanks
the aforementioned association of foreign banks. The survey
cial centre. This is also in keeping with the opinion of the ma-
to its central location, foreign banks prize the city
consulted foreign banks that have opened up offices for the
jority of the foreign banks in Frankfurt consulted in the survey,
as an ideal base of their operations in Germany
first time at Germany’s leading financial centre from 2003 on-
a majority that actively participates in the multifarious opera-
and Europe.
wards. In the results, the institutions in question confirmed
tions of the financial industry and frequently collaborates with
that this attractiveness stems from key location factors, and
the city’s native credit institutions. Foreign banks attach great
that these factors are of special relevance to institutions in-
significant to Frankfurt’s position as a transport hub. Thanks
The Frankfurt financial centre is an attractive location for for-
stalling themselves in Frankfurt for the first time. They include
to its central location in Europe and favourable transport facil-
eign banks. The financial crisis has not changed anything in
the reputation of the financial centre and the German econ-
ities, Frankfurt is a base from which to conduct business reach-
this regard. In fact, the numerous foreign institutions oper-
omy, the proximity to key players in the financial markets, and
ing far beyond the German borders. From the personal stand-
ating in Frankfurt turned out to be a stabilizing factor during
the fact that the city is also a main transport hub.
point of people employed by foreign banks in Frankfurt, good
the crisis. This is borne out by employment statistics as well
infrastructure and short travel distances are among the city’s
as the number of foreign banks represented in the city. Be-
Increasing significance for and on account of
further advantages. Finally, Frankfurt scores points on account
tween mid-2008 and mid-2009, Frankfurt banks laid off some
foreign banks
of other bonuses, which include relatively low costs (not lim-
3,500 people in total. Restructuring programmes at domes-
The main argument in favour of foreign banks having a pres-
ited to office space), the city’s cosmopolitan nature and ele-
tic banks were a main contributing factor. In this regard, yet it
ence in Frankfurt is the metropolis’s importance in the world
vated quality of life. Despite favourable assessment of Frank-
of finance. Frankfurt always takes the uncontested num-
furt on the part of foreign credit institutions, those in positions
ber-two position behind London in the competition among
of responsibility for the area cannot afford to rest on their lau-
European financial centres, and this position even seems to be
rels. International competition among financial centres is grow-
growing increasingly secure in the wake of the financial crisis,
ing fiercer by the day, not only in the context of Europe but also
thanks to the more conservative lines of business conducted
on the global playing field.
Springboard to
Germany and Europe
seems as if there were no significant job cuts at foreign banks.
By Gertrud R. Traud and Stefan Winter
According to the estimates of the Verband der Auslands-
there. The survey results also indicate that the German econ-
banken in Deutschland e. V. (Association of Foreign Banks
omy enjoys an even better reputation than it already did. Ac-
Dr. Gertrud R. Traud is Chief Econo-
in Germany), nearly 40 % of the recent figure of 72,500 peo-
cordingly, it is of crucial importance for foreign banks to be
mist and Head of Research at Landes-
ple employed at the financial centre work for foreign banks.
represented in the largest national economy in Europe. The
bank Hessen-Thüringen. Prior to that, she
The number of foreign banks with their main offices in Frank-
sound performance of the German economy since the end of
was Head of Institutional Equity Strategy
furt has also remained fairly stable, given the magnitude of
the crisis is another important factor: Germany’s above-aver-
at Bankgesellschaft Berlin and European
the financial crisis. The number is only 162 shy of its 2009
age economic growth means growing business potential to
Securities Network Strategy Coordinator.
peak, the number of representative offices has even risen from
companies, which necessarily must be financed and shared
40 to 41. However, this should on no account be interpreted
by banks domestic and foreign.
as meaning that withdrawing institutions have completely
disappeared from the financial centre on the river Main.
Existing community as key factor
Stefan Winter is Head of Investment
Several instances involved acquisitions, in the wake of which
The second most important argument on the part of foreign
Banking and Member of the Board at UBS
the business units involved continue to operate in Frankfurt.
banks in favour of being located in Frankfurt is its lively bank-
Deutschland AG and Chairman of the Ex-
ing community. This is reflected by the great number of banks
ecutive Board of Verband der Auslands-
The attractiveness of the Frankfurt financial centre to foreign
and other financial service providers there, and by the fact that
banken in Deutschland e. V. (Association
banks was recently confirmed by a survey conducted by
Deutsche Börse, the German Bundesbank and the European
of Foreign Banks in Germany).
Source: Jochen Günther / BME
10
Framework for the Financial centre
13
“It won’t quite work without ethics.
We can’t regulate everything.”
Interview with Wolfgang Schäuble
German Minster of Finance Wolfgang Schäuble believes we are already halfway
towards creating a new system of financial market governance.
Mr. Schäuble, on the subject of reg­
How far along the road are we now?
requirements still need to be created.
ulation: Barely three years after the
That depends on whether you’re looking
That’s the main thing. We furthermore
Lehman bankruptcy, Germany has
at the measures that have been agreed
need to discuss whether we can come
accomplished a great deal in terms
on, or those that have been implemented.
up with and reach agreement on limi­
of financial market organization at
In terms of conception, we’re more than
tative legislation for the sake of further
reducing the threat of systemic risks.
the domestic and international level.
halfway there. Basel III, the European su­
How far are we along the road? Are
pervisory structure, and the resolutions
we nearly there, or do we still have a
of the G20 have all made good progress.
Limitative in terms of size …?
long way to go?
In terms of all the things that still need to
Well, adequately determining and effec­
We have made good progress and have
be enforced – including Basel III, which
tively regulating an institution’s system­ic
achieved a great deal. Worldwide, more
will take time – we probably haven’t even
importance is a complex task. It requires
has been set in motion than would have
reached the halfway mark, though.
a broad approach that involves not only
comprehensive monitoring of system­ic
Photos: Georg J. Lopata
been dreamt possible a while back. We
still have a great deal to do, though, if
Among issues still pending resolution
risks, but also greater precautionary
we wish to avoid a repeat of the crisis of
at the G20 level are how to handle sys­
measures for those risks. This is what
2008. What concerns me is that, as the
temically important financial institu­
we seek to achieve by means of greater
recovery picks up, we might run out of
tions (German: Sifis), derivates and
capital requirements and the introduc­
steam in learning our lessons. We need
the shadow banking system. Sifis are
tion of the Bank Levy (German: Banken­
to make sure we don’t lose our capac­
so large or so networked that they can
abgabe), with which to fund the German
ity for further reform. It would be well
blackmail governments into saving
Restructuring Fund (German: Restruk­
for us to press on with determination. If
them when problems arise. How can
turierungsfonds). This also includes
we do not, we stand to be outpaced by
this problem of an implicit state guar­
en­hanced market mechanisms that will
future developments – more quickly than
antee be resolved?
enable participants to exit markets in
we can or wish to imag­ine. So we can’t
The first step has already been taken
an orderly way without jeopardizing the
afford to let up.
in Basel. Additional capital adequacy
system as a whole. We also need to
Photo: Georg J. Lopata
Angela Wefers, Börsen-Zeitung and Hubertus Väth, Frankfurt Main Finance, talking with the German Minister of Finance Wolfgang Schäuble (from the right)
find a way to draw clear lines between
because people happen to be imprudent
to make corrections to free governance
Board. But we shouldn’t throw the baby
­everything would grind to a halt. When
London”. Whether we will arrive at a con­
the real economy and the financial econ­
a lot of the time. You could call that mar­
systems. This is after all why they are
out with the bathwater. Where corpo­
we prohibited naked short sales, we pro­
sensus, I don’t know. But one thing I do
omy where derivatives and the shadow
ket failure. The real problem lies in over­
superior. Free governance systems are
rate governance is concerned, those in
ceeded at the national level. We were
know is that we are not going to let up
banking system are concerned. The
estimating human capabilities.
question is easier to formulate than the
capable of correcting mistakes; others
charge are asked to come up with their
heavily criticised for this. I took this criti­
on this issue where national regulation
are not. Now we need to step up the
own set of rules. But if those rules prove
cism very seriously. After carefully weigh­
really makes no sense at all. Regardless
of how tedious it’s going to be.
answer, however. Whether large financial
The [Christian Democratic] Union
debate a little. Nor should we assume,
insufficient, then the government has to
ing the pros and cons, we decided to
institutions really have to be made into
has a longstanding tradition of deal­
however, that is merely a matter of lack of
help them along.
go ahead, because this step forward
commodities dealers, is a question that
ing with economic governance issues.
morals on the part of market participants.
at least deserves to be asked.
What happened to policy debate on
But at the same time, a market organiza­
Germany competes at the global level.
economic governance within the party
tion that is solely dependent on partici­
Is the German Federal Government’s
on how to deal with the crisis?
pants’ ethical conduct, rather than rules
financial markets policy a good one
regulatory failure or mar­
and institutions, will tend
for strengthening Frankfurt’s position
heading the movement?
cial sector made a greater contribution
ket failure?
to fail. Of course, it won’t
as a financial centre, or should regu­
You have to always weigh the pros and
to financing the state budgets that, af­
quite work without eth­
lators be concerned about regulatory
cons. In the case of naked short sales,
ter all, have guaranteed that sector year-
ics either. We can’t regu­
arbitrage?
we certainly accelerated European devel­
in, year-out. It would not be altogether a
What was more to blame for the crisis,
Are those the only possi­
bilities? Is not the theory of
rational markets a big part
of the problem? Does it not
overlook the fact that mar­
ket participants are human,
“Free governance systems with no limits or
rules are self-destructive.”
and that humans do not
will accelerate the creation of European
Do you think taxpayers would feel
regulations.
more fairly treated if a Financial Trans­
action Tax were to be imposed?
Are you betting on Germany spear­
It would help quite a bit, if the finan­
late everything. We would
This is a dangerous argument. If abused,
opments. Judging by the state of affairs
bad thing either, if these greater contri­
end up with an inefficient,
the buzzword “regulatory arbitrage” can
at the European Commission back then,
butions were to slightly curb the tendency
prohibitive system. So you
prevent us from learning any lessons
I was particularly under the impression
in the financial markets towards going
have to find the right bal­
whatsoever. Or from making any kind of
that making the leap forward would be
to far. We used to have the Stock Ex­
ance. A physicist would
decision towards improvement. If new
worth it, to get the ball rolling. That’s why
change Sales Tax (German: Börsenum­
always act rationally? Human beings are
That debate took place, and we drew the
speak of a state of unstable equilibrium
regulatory legislation only meets with
I made that decision in that specific sit­
satzsteuer), but that kind of thing can’t be
susceptible. That’s why economics is a
correct conclusions from it. This is after
that has to be re-achieved over and over.
approval on the condition that it is intro­
uation. Other issues will be handled dif­
done anymore at the national level - par­
social science. The discipline has be­
all why we are so stubborn and so com­
duced without loopholes, there will al­
ferently. Take the never-ending debate
ticularly if you don’t have your own cur­
come so intimately associated with math­
mitted in Europe and in the G20 where
In the German Corporate Govern­
ways be some corner in this wide world
on the Financial Transaction Tax: Those
rency. That’s why the smallest unit is the
ematics that nowadays it is understood
regulatory issues are concerned. Any
ance Codex, industry has set up its
where it does not apply. So does that
who advocate introducing it at the global
monetary union zone. I wouldn’t go any
as belonging to the natural sciences. I
economic governance policy has to be
own regulatory system. Does it work?
mean it won’t work? That can’t be right.
level know that in this way, it would never
smaller than that.
venture to question whether this assump­
premised on the assumption that it is in­
It was a good start. But a number of its
So you have to be careful with that argu­
come about. Let’s say at the European
tion is entirely valid. This is why we need
tended for human beings – as flawed as
authors promptly failed to adhere to the
ment. If we avoid any kind of regulation
level, most people would like for all EU
So then you can conceive of a Finan­
regulation – possibly more than we had
they may be. The important thing is the
principles in the Codex – for example as
on the grounds of regulatory arbitrage,
members to participate. But if you sug­
cial Transaction Tax without London?
assumed. Free governance systems with
ability to draw conclusions from failures.
regards the immediate switch from the
the slowest member of the convoy will
gest we limit ourselves to the Eurozone,
I have to admit that the argument against
no limits or rules are self-destructive –
This affords us the opportunity to c
­ ontinue
Management Board to the Supervisory
be the one to set the pace. Ultimately,
then you get “It would be tough without
such a bold step forward ­c arries a
16
Framework for the Financial centre
Framework for the Financial centre
lot of weight, due to the feared com­
You sometimes ask yourself whether the
be incorporated into the European su­
(Restrukturierungsgesetz) has passed
petitive disadvantage it would create for
people involved have any idea of how
pervisory structure that entered into ef­
into law here. This at least means that
Frankfurt as a business location. But I
ordinary individuals perceive compen­
fect on 1 January.
at the national level we have learned the
sations of that magnitude. Specifically,
ing European regulation would be bet­
we did two things: First, as per the rec­
When will this work be presented for
time” - hopefully there never will, but it
ter, were we to move ahead with de­
ommendations of the Financial Stability
public scrutiny?
cannot ultimately be ruled out with abso­
termination in the Eurozone – perhaps
Board, we reduced incentives for short-
I think we will be implementing it in the
lute certainty - we could avoid systemic
second half of the year.
risk, without our being forced to assume
not right away, but soon. The non-Euro
term profit maximization among compen­
states in the EU are not interested in en­
sation elements. If incentives for short-
larging the gulf between themselves and
term profit maximization are too great, it
the Euro countries. So, personally, I think
leads people into temptation. Christianity
right lessons. Were there to be a “next
Photo: Georg J. Lopata
think that the odds in favour of a sweep­
liability as a state and tax-paying to the
17
“Supervision and
parliamentary
responsibility must
reside with the
German Ministry
of Finance.”
Will BaFin be coming to Frankfurt at
same extent as in 2008. The Bank Levy is
that time?
highly significant in this context. It hasn’t
to stride to the fore and take care of fu­
that if we can’t introduce it all over the EU,
No. Bonn and Frankfurt aren’t that far
killed anyone yet, either.
ture problems in advance by means of
I would be in favour of Introducing a Fi­
apart, after all.
nancial Transaction Tax in the Eurozone.
“We must not allow anything to
compromise the independence of
the Bundesbank in any way.”
Three of the five pillars of EU regula­
legislation. That type of thing inevitably
The announced legislation package in­
leads to inefficient, prohibitive systems. It
tended to protect investors and con­
is better for legislators to be a little more
tion are seated in Frankfurt: the ECB,
sumers is nearly completed. Will it be
hesitant – while still being sufficiently vig­
the Stability Board and the insurance
enough?
ilant in order to be able to promptly react
industry supervisory body; the stock
Whether all these measures will suffice
at all times, should the need arise. We
planning after 2012 or 2013?
exchange and banking supervisory
in practice remains yet to be seen. The
proceed step-by-step. It’s better to dou­
If you look at how long European deci­
has a key prayer, the Lord’s Prayer. One
­coordination with the Bundesbank and
bodies are not. A French member of
way I see it, legislators do not always
ble-check than to rashly do the wrong
sion-making processes take, I’m really
of the most important lines in it says “…
BaFin. The German Ministry of Finance is
the European Parliament once sug­
know everything in advance. So we’re
thing. What we have set in motion is not
not optimistic about our achieving quick
and lead us not into temptation …”. This
currently working out a draft on this basis.
gested bundling everything together
proceeding with caution. That there is a
excessive in terms of regulation for con­
results in Brussels. Nor would I neces­
is a strict fundamental principle of eco­
We must not allow anything to compro­
where the ECB is seated. Why did this
genuine need for regulation is borne out
sumer or investor protection.
by a series of legal proceedings. It has
How high are your hopes of not ­having
to take Financial Transaction Tax rev­
enues out of medium-term financial
sarily have used the Financial Transaction
nomic governance. On the other hand,
mise the independence of the Bundes­
idea meet with so little resonance?
Tax in medium-term financial planning …
those at financial institutions who avail
bank in any way. Supervision of the finan­
We wouldn’t have vetoed it in Berlin. But
been attested that key institutions in the
If there were one lesson you could
themselves of taxpayer assistance have
cial sector as a whole, which falls under
in Europe you always have to strive to­
German financial sector did not behave
have the financial sector learn from
Who was the originator then?
to bargain with restrictions being placed
the competence of BaFin, must likewise
wards a certain balance. The decision
entirely in the interest of investors. The
the crisis, what would it be?
The chairpersons of the coalition par­
on them – for the sake of society’s ac­
be preserved. The unanimous line is to
to move the seat of the ECB to Frankfurt
number of legal proceedings pending
It would be for the financial industry to
ties prepared the federal cost-cutting
ceptance of the situation. To many, this
enhance the potential for macropruden­
was not an easy one. German Chancellor
domestically and internationally is noth­
learn from the crisis that the more it re­
and additional taxation package known
is a reason to quickly get out of public
tial supervision on the part of the Bun­
Helmut Kohl was able to implement this
ing to be proud of, after all. Not all these
sists the temptation to wreak havoc by
as the “Zukunftspaket” prior to the June
assistance schemes. That’s as it should
desbank and to enhance macropruden­
decision using all his powers of persua­
cases end lightly. And some can only be
going to far, the less need we will have
2010 closed-door session, where it was
be. In the case of a key German bank, we
tial supervision on the part of the BaFin.
sion as a firm believer in Europe. But this
avoided by paying large settlements. One
for regulation.
adopted. The Federal Government, and
have just seen how this incentive is by all
Implementation decisions that are not di­
of course does not mean that we have
should therefore not be too quick to criti­
of course by extension the Minister of Fi­
means having the desired effect.
rectly related to the Bundesbank’s au­
to make compromises elsewhere. But, of
cize, if legislators perceive a certain need
tonomous monetary policy need to be
course, if everyone suddenly wants to
for regulation to be passed.
nance, are sticking to it and fighting for
The Coalition has agreed to reform
democratically controlled and subject
financial supervision at the national
to judicial review. This means that su­
Again, on the subject of perceived fair­
level and to centralize banking super­
pervision and parliamentary responsibil­
ness: The various measures you have
vision at the Deutsche Bundesbank.
it. But as I said, this is not an easy fight.
You mean they should recite the Lord’s
Prayer more often?
It’s always good to pray. But in my Chris­
move to Frankfurt, that’s fine by us.
Are you alluding to the BGH verdict?
tian vision of humanity, one should not
One more question on the subject of
Do you perceive the need for further
limit responsibility in this life to prayer; it
ity must reside with the German Ministry
location: Will the Bank Levy remain
action on the part of legislators in this
has to actually be assumed.
area?
adopted in order to limit executive
Things seem to have calmed down,
of Finance. In principle we are not going
a peculiarity of the German system?
compensations – are they sufficiently
correct?
to do anything new, but do seek to opti­
We are working on similar legislation at the
No. Nor is it my fundamental understand­
The above interview was conducted by An-
effective and are they being imple­
Not at all. Within the coalition, we
mize the demarcation between the two
European level. I am extremely pleased
ing of us as legislators, political leaders
gela Wefers, Managing Editor of the Ber-
mented as quickly as you would like?
have agreed on key points – in close
institutions. In addition, this all needs to
that the German Restructuring­ Act
and regulators that we necessarily have
lin editorial department of Börsen-Zeitung.
18
PErSPECTIVES AND TrENDS
PErSPECTIVES AND TrENDS
19
Private Banking Is Here to Stay
Interview with Herbert Hans Grüntker and Hans-Joachim Tonnellier
The private banking sector and its branch offices are facing many challenges. However, one thing will not
change. For most customers, private banking remains a central requirement for their financial needs.
Grüntker: Strong competition for the private customer guarantees low prices and top customer service. This becomes
clear when you take a look at other European countries and
2
How have the demands of private customers changed over the last few years?
the US. The comparison also shows that the private customer
4
Private customers are willing to change banks more than ever before. Why is that?
Tonnellier: You have to differentiate here. Customers who
Grüntker: The market for financial services has become
are prepared to change banks tend to be those who received
more transparent. Some customers are looking specifically
bad advice from their banks and who lost money during the
for individual products with attractive conditions and then
financial crisis. These customers are looking for banks that
use a different credit institution for each product. At the start
give good advice. If you feel well looked after then you’re go-
of the financial crisis, however, we noticed the opposite hap-
differing business philosophies – on a nationwide scale and
Tonnellier: Since the financial crisis, private
ing to stay where you are – that’s something we have defi-
pening. Personal banking increased in importance. Both pri-
nitely noticed.
vate and business customers appreciate having one contact
can choose from a large number of credit institutions with
not just in the main cities. Another advantage that comes
customers are more aware of risks. They look
from so many business models is a high level of stability in
for a bank whose advice they can trust and
the lending sector.
that offers high-quality products. When look-
that stays with them over time to handle all financial services.
ing for a long-term relationship, the customer
places great importance on the business
1
model and the business strategy. The Frank-
Germany is considered one of the toughest
banking markets in the world. How does
the private customer benefit from this?
furter Volksbank is well established in the
region for almost 150 years – which means
5
What can the US learn from Germany
about property financing?
a lot to customers.
Tonnellier: Thinking long-term, solid collateral and a thorough credit check. Property loans with variable interest rates
are less significant in Germany compared to the US. Longterm fixed interest rates are a safe planning basis and protect the borrower from repayment problems. Solid collateral
Tonnellier: Indeed, intense competition increases the supply.
Or, in more practical terms, competition improves the busi-
Grüntker: Many of our customers are also very nervous
Grüntker: Basically, 100% financing should be the maxi-
based on an up-to-date valuation of the property together
mum when financing property. This upper limit should not
with a sensible interest and capital repayment plan would
ness. Every bank tries to acquire and then retain a customer
about the financial crisis. For a long time they have opted
then be increased arbitrarily, if property prices are rising and
have meant no subprime segment and no subprime crisis
by offering the best products and the best financial advice.
for more conservative investments. Overall they challenge
certainly not when it is to be used to finance consumer goods.
in the US.
That’s why the availability of financial services in Germany is
our investment advice and think about it a lot more than in
The preference should be to agree on a sensible deposit as
so above average to the advantage of private and business
the past.
part of the whole financing arrangement.
customers alike.
3
What can banks from emerging markets learn from German retail banking?
6
You have introduced multi-channel banking as a response to the direct banks –
what is the future of your branches?
Grüntker: Our branches remain the core of the retail busi-
Tonnellier: Distance precludes closeness, which is why the
Tonnellier: Let me talk explicitly about the cooperative bank-
Grüntker: The experience of the financial crisis shows that
ness for the savings banks. Nonetheless, for some time now
branches of the Frankfurter Volksbank are essential. Here
ing model at this juncture: Despite individual weaknesses, it
credit institutions are successful when they know their private
we have offered our customers a multitude of ways to con-
we can guarantee those attributes that are so important for
is able, as a whole, to sustain innovative and strong busi-
and business customers and seek to maintain a close and
tact us. As with the direct banks, this includes telephone and
our customers – to be close and available with people and
ness. This is how cooperative banks contribute effectively
long-lasting business relationship. Also important is a meas-
online banking. The success of our 1822direct bank shows
not with ATMs. We wouldn’t impose anonymous call cent-
to helping each other to support themselves. Self-help, reli-
ured approach to risk-taking. Banks should never lend more
that many customers prefer to invest online.
ers on our customers. We are there for them in person. Every
ability, continuity and a consistent approach to regionaliza-
than the market value as happened in the US – an extremely
customer of the Frankfurter Volksbank has their own advi-
tion are essential elements of this model.
bad precedent.
sor and contact. That’s how we understand direct banking.
20
PErSPECTIVES AND TrENDS
PErSPECTIVES AND TrENDS
10
8
Financing new businesses is very desirable from an economic point of view
but risky for banks and rarely profitable. How do you handle this?
21
When will mobile phone banking become an issue in Germany?
Grüntker: The market for payment transactions services is
Tonnellier: Paying by SIM card instead of chip card is cer-
currently very fluid. Technological developments will deliver
tainly more convenient as long as security is guaranteed.
alternatives like payments by mobile phone. One aspect however tends to be forgotten. Payment transactions are more
Grüntker: The Frankfurter Sparkasse believes in handling all the financial issues of our
Tonnellier: There is no doubt that Basle III will intensify the
search for favourable refinancing possibilities and consequently for customers’ deposits. But customers have learned
from the financial crisis that the banks with the best savings
rates are not necessarily the most solid.
customers: from cradle to grave, from found-
7
Grüntker: We have made the assumption that Basle III will
make the capital market less attractive and that refinancing
these chips and an infrastructure needs to be in place to ensure that the money is credited to an account.
ing new businesses to clarifying succession
issues. That’s why we also finance new busi-
11
nesses. We try to be the sparring partner for
the founders of new businesses and constructively challenge the business concept
and its implementation.
Basle III: Will the competition for customers’
deposits become even stronger?
than just a chip in a phone. The trader needs tools to read
Grüntker: We basically welcome all measures that contribute to an improvement in the quality of investment advice. I
should like to mention two things: the measures must be realizable and not burdened down with bureaucratic require-
Tonnellier: The Frankfurter Volksbank is the bank for SMEs.
ments – they shouldn’t scare off the customer into seeking
Not just for existing business financing but also for newly
any kind of investment advice. With all due respect for the
founded ones. New business financing is therefore part of our
demand for good advice, one aspect should not be over-
daily business. Our advisors have detailed knowledge of the
looked: even the best advice cannot protect someone from
market and can assess the risks when advising customers.
unforeseeable changes in the markets. Perfect advice does
not in itself automatically mean that the desired yields will
via the retail market will become more interesting. On the
Investment advice is becoming much
more regulated. How does that affect your
business?
Tonnellier: The requirements and documentary obligations
of the recent past are largely only a formal confirmation of
a practice that we have used for years ourselves: providing
advice for the customer that is transparent and comprehensible. We have always tended to give conservative advice and
warned our customers away from experimentation and risks
that cannot be measured. Our investment advice reflects the
traditional values of any honest business practitioner.
be achieved.
other side of the balance sheet, however, property financing will become more interesting, because this financing can
be used as security for issuing mortgage bonds. Just at the
moment the regional private customer banks are experienc-
12
ing stronger competition on both sides of the balance sheet.
9
Paying online has led to the advent of new financial providers such as PayPal.
“The world needs banking but not banks”, Bill Gates once said. Will he be proven right?
What will private banking mean in the future?
Tonnellier: The same as it means today for the Frankfurter
Grüntker: I don’t expect any change here either because
Volksbank: a lifelong reliable partner in all financial matters.
the basic needs of the customer remain the same, from providing an account service, to investments and risk prevention through to financing requirements. Personal banking re-
Grüntker: It’s rather short-sighted to limit the role of banks
Tonnellier: Bill Gates’ comment is 15 years old and I don’t
to standardized payment mechanisms. Their function is
see that the value of banks to the economy has changed
much broader than that. Banks advise customers on their
for one moment over this time. I agree with you: banks do
savings, they provide financing for buying a house or to ex-
far more than simply handle payment transactions. Without
pand a business. The new financial providers cannot do that.
them, there would be no accumulation of capital, no distribution of capital and no maturity transformation, no loans,
no financing of new businesses, and consequently no economic progress. Banks remain indispensible in the future.
mains the first port of call in all financial matters.
Herbert Hans Grüntker is Chairman of the Board of Frankfurter
Hans-Joachim Tonnellier has been a Board Member of
Sparkasse, the fourth-largest savings bank in Germany. He is
the Frankfurter Volksbank since 1981, and since 1997 has
also active in numerous social and cultural organisations, for
been the Chairman of Germany’s second largest Volksbank.
example in the Society of Friends and Promoters of the Goethe
With many honorary activities in diverse institutions, he is a
University and in the 1822-Stiftung.
role model for active social commitment.
22
PersPectiVes AND treNDs
Cooperative
private banking
combines …
PersPectiVes AND treNDs
Private Banking Has to Be
Value-oriented
23
… proximity to
the customer with
an underlying
value-oriented
philosophy …
… and
internationally
oriented consultancy
competencies.
Interview with Lars Hille
In the midst of the financial crisis, the Genossenschaftliche FinanzGruppe
through the crisis on its own merits, any-
relationship with the customer at all
cooperative banking alliance was successful in laying a new foundation for
way. These are fruits of a sustained ef-
times and make their own decisions on
its private banking business and introducing the concept of cooperative
fort that was value-oriented and down-
whether to use DZ PRIVATBANK ser-
private banking. Lars Hille, Member of the Board of Managing Directors
to-earth from the very start – and that
vices and to what extent. This makes
at DZ BANK, defined this new range of services in an interview.
pays off in private banking. Coopera-
us flexible and able to act according to
in the private banking business for years.
tive banks have a great edge in terms
our needs.
Now it also directs and coordinates
Mr. Hille, how can a decentralized
business. In order to offer the cooper-
of trust, particularly because they live by
alliance like the Genossenschaftliche
ative banks the best possible service in
the central cooperative values of close
How does this benefit the private
BANK has set up branches in Germany
FinanzGruppe successfully offer pri-
this area, we started the nationwide “Pri-
association, transparency and proxim-
banking customer?
and taken over UniCredit Luxemburg‘s
vate banking services?
vate Banking Market Initiative” a while
ity to the customer. All this provides a
Like no other set of services in the mar-
private banking portfolio, including its
The key to our success is the interac-
back in collaboration with WGZ BANK
sound foundation for a market offen-
ket, cooperative private banking com-
customers and employees. The merger
tion between the German coopera-
and set up a private banking business
sive doing business with wealthy private
bines proximity to the customer with an
between the two Luxembourgian firms
tive banks [referred to collectively as
along the lines of a subsidiary and in
customers. Cooperative banks across
underlying value-oriented philosophy
DZ PRIVATBANK S. A. and WGZ BANK
Volks- und Raiffeisenbanken] and DZ
keeping with our cooperative philosophy.
the nation are able to offer first-rate pri-
and international consulting competen-
Luxembourg S. A. is nearly completed.
BANK. As the Genossenschaftliche
This business segment is coordinated by
vate banking services under the quality
cies. So the main thing we offer is an
In the course of the merger, the private
FinanzGruppe‘s central institution, our
our subsidiary, DZ PRIVATBANK, in Lux-
brand “VR-PrivateBanking”.
approach to consulting that for the first
banking firm WGZ BANK AG in Düssel-
job is to provide optimum support to the
embourg. Our cooperative approach en-
time can be called truly “holistic”. This
dorf will be integrated as the fourth
cooperative banks in offering
ables us to tap the potential of existing
What‘s new about VR-PrivateBank-
makes it possible for us to flesh out the
branch of DZ PRIVATBANK. Further
local customer relationships in collab-
ing compared to other services on
goals and needs of our private banking
expansion of the network in Germany is
of the highest qual-
oration with the Volks- und Raiffeisen-
the market?
customers and come up with individu-
already in the planning. This merger is
ity. We also see con-
banken and also to win over new cus-
“Cooperative private banking” is new, that
ally tailored solutions.
the logical extension of our joint project,
siderable potential
tomers with our services. It‘s already
is, a united appearance on the nation-
for our organiza-
proving to be a very successful concept.
wide scene on the part of all the banks in
Has this new range of services also
bundles competencies and strengthens
the Genossenschaftliche FinanzGruppe
resulted in any structural changes to
the position of the Genossenschaftliche
Your approach has, after all, al-
alliance. High net worth customers now
firms in the alliance?
FinanzGruppe in this high-growth
ready passed its first major test …
see a competent private banking partner
The Genossenschaftliche FinanzGruppe
market.
That‘s right! We started up success-
in their local bank. The individual banks
has restructured its private banking ac-
fully in the middle of the great finan-
decide on the degree to which they want
tivities. The DZ PRIVATBANK Group
Lars Hille is Member of the Board of
cial crisis – there could hardly be bet-
to work with our DZ PRIVATBANK sub-
plays a key role here: With branches in
Managing Directors at DZ BANK AG and
ter proof of a sound business model.
sidiary according to their needs. They
Luxembourg, Singapore and Switzer-
he is in charge of the private customer
The entire cooperative organization got
remain the central managers of the
land, it has been successfully engaged
business segment of DZ BANK Group.
their customers services
tion in the private banking
domestic activities as well. DZ PRIVAT-
the Private Banking Market Initiative. It
24
“
P e r sp e c t i v e s a n d T r e n d s
Sights Set on the Next Generations
P e r sp e c t i v e s a n d T r e n d s
25
Our customers appreciate the
clarity and consistency of our
­investment philosophy.
It offers them reliability
Interview with Emmerich Müller
and orientation at a time
Emmerich Müller, Member of the Partners’ Committee of Metzler Bank, believes that in the long term, i. e.
No. This is where Metzler’s purity stand-
more in demand in the wake of the
when fads in the capital
over generations, capital can only be accumulated and secured by adherence to a kind of purity stand-
ard comes into play: We purposely
­crisis in the financial markets?
markets come as quickly
ard. Only equities, bonds and liquidity make their way into his portfolio. Müller explains why in this dis-
­concentrate on equities, bonds and
Yes, definitely. The crisis in the financial
cussion of what constitutes truly long-term capital investment.
­liquidity, because these asset classes
markets has made investors more
as they go.
are transparent, cost-efficient, and un-
acutely aware of the fact that the rela-
Mr. Müller, how have your investment
The most important thing for accumu-
businesses, also equities. Cash, fixed-
derstandable – they can also be traded
tionship between risk and return – a
strategies changed in light of the di­
lating and preserving capital in the long-
income ­securities and life insurance pol-
at any given time.
­relationship that merely seemed to have
saster in Japan and the political up­
term is to have a clear fundamental strat-
icies, on the other hand, count as nomi-
heavals in many Arab countries?
egy. Once you‘ve found one that works
nal capital. They are constantly exposed
Does your refraining from making
from speaking with our customers that,
Where Metzler Private Banking is con-
for you, you can be much more uncon-
to the risk of inflation, though they also
other kinds of investments mean
this being the case, people appreciate
cerned, crises and upheavals have
cerned about crises – you can even
increase in value in a deflation sce-
your customers have to accept lower
the clarity and consistency of our invest-
never been any reason to change our
use them to your tactical advantage.
nario; with tangible capital it‘s the ex-
returns?
ment philosophy. It offers them reliabil-
fundamental investment strategy. This
In the meantime the idea is to remain
act opposite. There are also ways to re-
That might be the case over the short
ity and orientation at a time when fads,
has to do with the very long-term time
­focused on elementary risks that might
duce ­political risk, especially by means
term, but long-term, our approach has
including those in the capital markets,
horizon we work with in our capital man-
jeopardize long-term capital preserva-
of broad ­d iversification over ­d ifferent
proven highly successful. Our custom-
come as quickly as they go. Plus, they
agement. It‘s because our customers
tion, and to arrange the strategic allo-
countries and areas.
ers get a far greater kind of security in
feel they are in good hands with us, be-
are not concerned with getting the best
cation of your total assets accordingly.
return for sacrificing short-term gains:
cause we have already shown by our
­return in the next quarter, but in preserv-
Elementary risks not only include things
What are your recommendations for
the ability to preserve their capital over
own example that we have mastered the
ing their capital long-term. This doesn‘t
like illness, family feuds, and company
sustainable and successful capital
the long haul. Those seeking the high-
art of long-term capital preservation –
mean over the next month, or over the
successorship issues, but also inflation
management?
est possible return at any given moment
we’ve been doing it for eleven genera-
next year, but over the coming decades
risk, deflation risk, or the risk of political
As far as trans-generational capital
have to structure their investments in
tions of Metzlers now. The surest sign
or generations. In other words, private
change – things like war, coups d‘etat or
management is concerned, our recom-
a completely different way; they have
of heightened risk awareness on the
banking, in the ­Metzlerian sense, is the
expropriations. These risks can only be
mendation – regardless of the current
to take greater risks. But because our
part of investors is the fact that even
art of controlling the kind of risks that
countered by means of a broadly diver-
circumstances – would be to invest a
­investment philosophy is to always keep
our competitors are experiencing
threaten long-term capital preserva-
sified portfolio.
third of one‘s capital in tangible capi-
an eye on the risks, our customers’ port-
a veritable Renaissance in the
tal and another third in nominal capital.
folios have survived the crisis almost un-
demand for this purist investment approach.
tion. Not that we don‘t ever make slight
become irrelevant – still holds. We know
adjustments to our portfolios in times
What would this kind of diversifica­
That‘s the fundamental strategy we stick
scathed. So, if for no other reason than
of crisis, of course, but this doesn‘t
tion entail in your case?
to, regardless of current market condi-
our responsibility towards our custom-
mean that the fundamental orientation
We hedge by scattering risks on many
tions. The remaining third of one‘s capi-
ers, our investment philosophy always
of these portfolios is being called into
different levels through the strate-
tal would be suitable for more short-term,
goes hand-in-hand with realistic expec-
Emmerich Müller is Mem-
question.
gic ­allocation of total assets. The first
tactical moves.
tations where return is concerned.
ber of the Partners’ Committee
and Personally Liable Partner of Metzler
thing we do is to categorize assets
What is your approach to ensure that
into ­tangible capital and nominal cap-
Do you also broadly diversify across
Have you noticed that your purist
Bank. His responsibilities includes the
your customers‘ capital can be pre­
ital. Tangible capital includes assets
the greatest possible variety of finan­
approach to capital management is
Metzler Private Banking segment.
served over generations?
like real estate properties, stakes in
cial instruments?
”
26
P erspecti v es and T rends
The German capital markets are always offering new and attractive instruments to
middle-tier companies, both for obtaining equity and outside capital. The la­test innovation is the Mittelstandsanleihe, a bond specially designed for medium-sized firms.
Furthermore, international companies are discovering the advantages of launching
an IPO in Frankfurt.
Middle-tier Companies Making
Their Way to the Capital Markets
By Jochen Grossmann
Is there a credit crunch in Germany? No! This is borne out
significantly less time and effort. This is why, from the start,
coverage is present in the German market, but is lacking in
companies are in the public eye. Above all else, an IPO in-
by statistics compiled by Deutsche Bundesbank. A credit
this segment sparked a new capital market culture among
the respective company’s country of origin. This is the case
creases a company’s equity capital, thereby enhancing its
crunch is nonetheless perceived when middle-tier compa-
German middle-sized companies.
particularly in the “green tech” and renewable energy indus-
creditworthiness. More and more middle-tier firms, in Ger-
tries. An IPO in Germany also offers interesting possibilities
many and elsewhere, are recognizing these benefits. Yet the
nies are consulted, since in that area there is growing need to
become less dependent on bank loans. Not the least reason
The pool of creditors in the capital markets willing to adopt
in other industries. For example, a listing on a German stock
costs also have to be considered. The responsibilities of the
for this is the fact that banks seem to have grown more cau-
these instruments is far larger than the number of poten-
exchange can help a company gain a foothold in the German
CFO are increased, and experience a shift in the direction of
tious in granting loans. Risk premiums on top of loan interest
tial banks granting loans. Service providers like Steubing AG
market and to exploit sales opportunities, since this consider-
public respectively investor relations. It is not uncommon for
rates also appear to have risen. German capital markets have
support issuers in floating their bonds on the market and
ably enhances a firm’s public exposure. Moreover – with the
finance department staff to be enlarged, since a share in the
responded to this demand and are now offering investment
finding subscribers for new issues. Bond investors generally
exception of legal supervisory requirements – the free capital
company is a new product on offer, which has to be sold. This
capital segments especially suited to middle-tier businesses.
tend to be looking for repayment guarantees and attractive
markets in western democracies present no obstacles what-
is well worth the effort, however, as is demonstrated by the
interest rates. Both these requisites are met by the issues
soever to an IPO. This is a far cry from the non-transparent,
continuously growing interest in the German capital markets
of solid middle-tier companies in the German capital mar-
laborious and all-too-often fruitless approval processes re-
among German and foreign firms and investors alike.
kets, where demand for them is accordingly strong. Equities,
quired in high-growth emerging markets.
Strong demand among investors
Following the Stuttgart Stock Exchange’s start-up of its
by contrast, enable investors to participate in a company’s
“Bondm” segment about a year ago, through which over 15
“growth story” and profits. The German capital markets, where
new issues have been floated, the Frankfurt Stock Exchange
equities market segments are tiered according to reporting
created an equivalent called Entry Standard for corporate
and transparency requirements, also offer suitable solutions
Following an IPO and thanks to the transparency that goes
Dr. Jochen Grossmann is Member of
bonds in April 2011. The advantages for issuer firms are many:
in this respect. Here too, the Frankfurt Entry Standard offers
hand-in-hand with it, middle-tier firms can enjoy greater con-
the Management Board at Steubing AG.
For example, as a rule, investment loans of 30, 50 or more
a newcomer segment that can already be used by smaller
fidence of domestic and foreign business partners. Moreover,
Prior to that, he was Head of Capital Mar-
million euros are only obtainable through syndicates involv-
middle-tier firms looking to launch an IPO. The German cap-
exchange-traded public companies are attractive to potential
kets & Advisory at Commerzbank, after
ing the participation of several banks – and the attendant
ital markets also present interesting avenues for foreign com-
new employees, a listing is also accompanied by increased
having worked extensively in that bank’s
processing and reporting expenses. Issuing bonds involves
panies, for example in cases where a peer group and analyst
brand awareness and value. This is because exchange-listed
capital markets segment.
Exchange listing creates confidence
28
Perspectives and Trends
Perspectives and Trends
Asset Management – Made in Germany
Question 2:
Interview with Wolfgang Matis und Thomas Neiße
What role do German asset
managers play in the emerging
markets?
Neiße: The German asset management industry is invested and will continue
to invest in the Eastern European convergence states and increasingly in
the Middle East. German investors have been able to profit from the growth
in these countries in recent years. This only works if investors can actually
gain access to these markets. The German fund industry is the key here. It is
The German investment fund industry is renowned for its international strengths and great capacity for
through us that money gets to where it’s needed for growth.
­innovation. The government has also put the wind in its sails by finally recognizing the value of investment funds for retirement planning and fostering them through tax breaks. This adds extra thrust to ­asset
Matis: We provided our customers with access to the emerging markets early
management, Made in Germany.
on and have continuously developed products along these lines, like our Eastern European, Russian, BRIC, Turkey and Africa funds. We have our own presence in numerous emerging markets, or else we cooperate with local partners there. The assets under management there are still not as important as
those here in the German market, but they’re growing at a much faster rate.
Question 1:
Americans are considered
to be the leading asset
managers worldwide. What
Neiße: The American asset management market is doubtless the leading market in the world. Here in Germany we still have a long way to go, particularly
do German managers have
to offer in this respect?
as regards the affinity for equities and equity funds. In this respect, I’m quite
happy to look to the American market as a role model for us. Now, as far as
actual asset managers are concerned, there are successful ones and less
successful ones as much in the US as in Germany. Indeed, German accomplishments in this area are considerable.
Neiße: It’s important for us to understand the markets we invest in. Beyond
Question 3:
What should asset managers
pay attention to in these markets,
in your opinion?
that, there has to be a certain equivalence, for example with respect to compliance standards. There are doubtless countries with very attractive growth
rates, which are still not that attractive to us, simply because it is too difficult
for us grasp how these markets are supervised. China, just to cite one example, probably has some catching up to do in this area.
Matis: That’s right. The invest fund products of larger German firms are highly
accomplished. Take retirement planning, for example: In the US, there are
Matis: The first lesson is to forget about one-size-fits-all strategies - each
barely any products offering capital-back guarantees. In Germany it’s the
market is different. An asset manager’s success in the emerging markets
other way around – and demand for guaranteed retirement products is on the
has a great deal to do with adapting to local conditions and developing the
rise nowadays. Savings products that guarantee capital protection through
right business model for a given market. That’s why in some countries it is
hedging models, for example by means of suitable asset allocation, are par-
better to collaborate with local service providers; in others we opened up
ticularly attractive here, since the costs of the guarantee are less of a factor.
our own branches.
29
30
PersPectives And trends
PersPectives And trends
Neiße: Basically, a fund management firm like Deka Investment benefits from
Question 7:
Matis: Regularly contributing to an
the structures provided by the German Savings Bank Association (Sparkassen
Question 4:
investment plan does away with the
Finanzgruppe) and the possibility of being able to use its cross-disciplinary
Is an asset manager’s associa-
timing problem of bad entry and exit
internal expertise. Deka Bank as part of a group additionally enhances trust in
tion with a bank or banking group,
points. In the case of one-time invest-
the brand, and through its financing capacity it is better able to back up guar-
as it is often the case in Germany,
ments we continuously provide our
anteed products than a small firm would be able to on its own. In individual
an advantage or a disadvantage?
sales partners and investors with reg-
cases, being associated with a bank can also have a braking effect, but some-
ular market commentary and infor-
times this is also an advantage.
mation. In addition, more and more
The timing of investors is alltoo-often off, in other words, they
get on board too late and they get
out too late. What do you do to
help them?
investors are delegating their asset
Neiße: Basically, there are three main things every investor is concerned about:
Matis: DWS enjoys enormous benefits from being part of the Deutsche Bank
allocation to funds. We reacted to
First: Can I invest money in such a way that I can get my hands on it should I
Group. This association works out very well for us, not just as a sales chan-
the situation by starting up a multi-
need it in the short term? Answer: Invest in products that don’t tend to fluctuate
nel, but also in many other key functions.
asset segment last year, which is
that much; so that entry and exit point are not an issue. Second: How should I
more heavily focussed on absolute
structure the way I invest my money? Answer: If investments are structured in a
returns through cross-disciplinary
balanced way, upturns and downturns are likewise only of secondary concern.
asset management.
And third: How can I exploit opportunities? And this last point actually is a
Question 5:
Neiße: Nothing has changed in terms of our fundamental recommendations:
Two enormous setbacks in the
Investors should sufficiently diversify their investments according to their own
stock markets in a decade have
risk tolerance and shouldn’t put all their eggs in one basket. Also, even cau-
scared investors off. What would
tious investors should have equity funds in their portfolios. Particularly for
Matis: Indeed we will. The Bundesverband Investment und Asset Manage-
you advise they do?
long-term investment horizons, there still is no better investment. Besides,
ment (BVI), has long been pointing out the unequal treatment of investment
the large corrections in the past ten years were quickly followed by massive
fund savings plans compared to insurance products and has finally been able
rebounds – sometimes just having a little patience is enough.
to get through to government policy-makers about it. According to the latest
matter of finding the right entry and exit points.
discussions, plans are underway to cut the personal income tax on investMatis: The vagaries of stock prices in recent years have been a real
ment fund savings plans for retirement planning down to half, just as with in-
trial for all investors. The current market climate with huge sovereign
surance plans – provided certain conditions are met.
Question 8:
The investment fund
industry has for a long time
complained of being discriminated
against the insurance sector. Will
we be seeing any changes in
debts, incipient inflation, political upheavals in the Arab nations and
finally events in Japan are a call to sobriety. But in times of increased
Question 6:
Neiße: Particularly where long-term capital accumulation is concerned, there can
uncertainty, it is crucial not to be closed-minded about capital invest-
There don’t appear to be any
be no success without investment fund products. Small investors, for example,
ment, but instead to use price corrections to one’s own advantage for
safe harbours any more in the
can only save in limited amounts and therefore depend on more efficient means
repositioning and purposeful investment.
capital markets. Where do you
of capital appreciation. This is why private retirement planning through funds has
see the next trouble spot?
to be actively encouraged. Government policy makers are sending out signals that
this regard?
make us more optimistic than we could afford to be in the past, and there is hope
that, in the future, fund products will no longer be discriminated against tax-wise.
Neiße: I wouldn’t exactly speak of a “trouble spot”, but I do
think that one new dimension is the fact that we have to be
Matis: Currently, there are a number of issues that could
concerned about the solvency of sovereign nations - or even
potentially develop into a new crisis, such as the balloon-
Wolfgang Matis is Global ceO and
Thomas Neiße is chairman of the Man-
state bankruptcies. A few years ago, this was totally incon-
ing public debts of key industrial nations or political unrest
spokesman of the Board of directors at
agement Board at deka investment GmbH.
ceivable, but today it’s a possibility that is being openly dis-
in Africa and the Middle East. Plus the fact that globaliza-
dWs investments.
He is furthermore a Member of the execu-
cussed. This represents a paradigm shift, which of course
tion is giving rise to inflationary trends for the first time in
tive Board of deutsches Aktieninstitut and
will have a great bearing on the markets and entail new risks.
30 years. Big fluctuations in the markets are here to stay.
President of Bvi Bundesverband invest-
In light of these issues, concentrating more on tangible
ment und Asset Management e. v.
assets strikes us as the right thing to do.
31
32
PERSPECTIVES And TREndS
PERSPECTIVES And TREndS
33
Location and Quality: Back to True Values
with restructuring efforts. In this climate, greater demands
These changes in basic terms and conditions are giving rise
have been placed on both banks and their customers in equal
to three important developments in commercial real estate
By Johann Berger
measure. Against the backdrop of a dried-up syndication mar-
financing:
ket, banks are increasingly acting as balance sheet lenders
1) Cooperation between banks and customers is becoming
and exposing themselves to credit risks on their own books.
increasingly important. Until the syndication market recovers,
Long-term relationships with the customer based on trust, the quality of the object to be financed and
These traditional real estate loans have to be backed by the
club deals remain the preferred instrument for large-scale
adequate equity capital coverage are some of the traditional values that have recently been gaining
banks’ own equity, further restricting any leeway for granting
financing. Project developers will likewise be collaborating
renewed traction in the commercial real estate lending business. This has led to changes in the market.
new loans. In tandem, the traditional values of the real es-
more frequently in order to be able to meet increasingly more
tate lending business have been gaining new traction. Last-
stringent demands in terms of the equity capital that has to
ing relationships with the customer based on trust are now
come in.
The commercial real estate markets were hard-hit by the
availability of the CMBS market as a source of financing con-
once more an acknowledged basis for real estate business
2) Because German banks are increasingly concentrating on
global financial crisis, which has also led to lasting changes
tinues to be limited. While the first securities issues are start-
with long-term horizons. Quality and good risk management
the domestic market, while at the same time the quality of the
in the climate for financing commercial properties. Certain
ing to reappear in the US, in Europe the market has far from
are taking precedence over short-term opportunities in terms
real estate to be financed is becoming more significant, the
property values and rents have gone down drastically in
recovered. The market for syndicated loans came to a stand-
of volume and return.
core real estate business is becoming more competitive.
many countries, posing great challenges to many real estate
still during the crisis and has still not loosened up. Financing
investors and their financers. However, individual areas and
on a larger scale has thus far remained possible almost the
Due to a significant increase in risk aversion, partly
projects, on the other hand, are more frequently being re-
sectors in the real estate market have performed quite differ-
exclusively through club deals. It has become significantly
attributable to increased charges to equity capital, credit in-
jected than before, due to greater risk of default. Either that,
ently: While the German commercial real estate market has
more difficult for investors, and especially for project devel-
stitutions are placing more stringent demands on borrowers
or else banks are taking the greater risks into account in the
proven relatively stable, other markets, like the UK or the US,
opers, to carry out large projects in this climate. The basic
nowadays than they used to in the past. Investors are required
form of higher margins.
completely collapsed.
terms and conditions under which financing can currently be
to have a business model conceived for the long term, since,
3) Select foreign markets will continue to present significant
obtained for commercial real estate are furthermore marked
now more than ever, the quality of the object to be financed,
and attractive opportunities for banks going forward, if only
For banks, the outbreak of the financial crisis has led to
by increasingly stringent liquidity and equity requirements in
sustainable cash flow resulting from the loan and appropriate
on account of the diversification they can add to a loan port-
a noticeable deterioration in the terms attached to obtaining
the context of Basel III, growing demand of funding on the part
levels of equity capital commitment are key considerations in
folio, beyond diversification in terms of customers, countries
funds. Funding spreads have become a significant factor in
of banks and changing competition. Many foreign institutions
decisions on whether to provide financing or not.
and the intended purposes of the loans. This is particularly
this regard. Restricted access to the capital markets result-
that were active in Germany prior to the crisis have
true against the backdrop of the recovery that is already un-
ing from the crisis has curbed banks’ room to manoeuvre.
now withdrawn. At the same time, some German
derway in most commercial real estate markets, as the global
Parts of the financial markets that played an important role for
banks have had to scale back new busi-
economic upturn progresses.
larger real estate lending still lie idle today: For example, the
ness in connection
Applications for less attractive properties or development
Johann Berger is Vice Chairman of the
Management Board of Landesbank Hessen-Thüringen. Among other things, he is
in charge of the bank’s real estate lending
business, its property management and
real estate lending sales management.
34
PERSPECTIvES AND TRENDS
PERSPECTIvES AND TRENDS
Bank Financing: Securing the Future
3: Patent applications
Domestic and foreign applications, 2008
By Markus Beumer
Japan
The German economy, and the German small and
Germany appears to have experienced a small economic mir-
medium-sized enterprise (SME) sector in parti-
acle. True, the country is still feeling the effects of the finan-
cular, has recovered impressively from the finan-
cial market crisis, and the debt crisis of some EU states repre-
cial market crisis, and steps must now be taken
sents a major challenge for the European Union, also in terms
to secure its long-term global competitiveness.
502,054
USA
-4.1
400,769
China
26.7
203,481
South Korea
-0.1
-1.6
172,342
135,748
2.5
France
47,597
2.5
of economic policy. But German economic growth has steamed
Great Britain
42,296
-0.3
The investments in know-how and machinery and
ahead: It is surprisingly robust, and we are currently witnessing
Russia
29,176
1.5
equipment necessary to achieve this require a fa-
growth rates that have not been recorded for nearly 20 years.
Switzerland
26,640
-1.9
vorable business and regulatory environment, as
This is due to buoyant global demand, particularly from Asia, as
The Netherlands
25,927
-2.9
well as appropriate financing conditions.
well as a pick-up in domestic consumption.
Although most of the decline is attributable to weak construc-
Italy
21,911
-4.1
tion investment, the share of the other investment component –
Canada
21,330
-3.5
There is a widespread consensus that the main reasons for Ger-
plant and equipment investment – has stagnated at 8 percent
Sweden
17,051
3.0
1: German GDP growth
many’s high degree of international competitiveness include: An
of GDP. At the same time, German expenditure on Research &
In real terms
extended period of moderate wage growth; high quality prod-
Development stood at 2.5 percent of GDP in 2009, only slightly
6
ucts; the multifaceted structure of the SME sector; and not least,
above the OECD average of 2.3 percent, and considerably be-
4
reforms of the country’s social welfare system. All the same, de-
low the three percent targeted by the European Commission’s
2
spite the successes enjoyed so far, we must continue to work
“Europe 2020” strategy. Germany now ranks only fifth in terms
0
hard to remain competitive internationally. The investment ratio
of foreign and domestic patent applications, behind China and
-2
is a good indicator for this: The fact that this measure has fallen
South Korea, among others.
-4
on average over the long term in Germany, highlights the need
-6
for action. The ratio of gross fixed investment as a percentage
This trend is important to monitor, given Germany’s declining
of gross domestic product (GDP) has fallen from approximately
population: Germany’s labor force potential is expected to fall
22 percent in the early 1990s to around 18 percent at present.
by four percent from 2008 to 2020 alone; by 2030, this fig-
-8
1992 1993 1994 1995 1996 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Federal Statistical Office
Germany
ure is projected to fall by as much as 15 percent. Depending
on the level of immigration to Germany, this could amount to a
YoY change in %
Gross fixed
investment in
1991:
356.75
2: German investment ratio
decline of 350,000 people each year, or more. To maintain the
Gross fixed investment as a percentage of GDP
standard of living, this means that less and less people will have
25
to continuously produce more and more per capita. This can
20
only work if Germany remains innovative and competitive. It is
therefore becoming increasingly important to invest in know-
15
how as well as in machinery and equipment. Germany needs
10
cutting-edge products, the best machinery and the most effi-
5
EUR bn
Gross fixed
investment in
2010:
448.14
EUR bn
cient production processes. Most of all, however, we must at-
0
1991 1992 1993 1994 1995 1996 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
tract and retain the best brains, particularly in engineering and
Source: Federal Statistical Office
the natural sciences.
0
100.000
200.000
300.000
400.000
Source: WIPO, 2010 Edition
YoY change in %
Number of patent
applications
500.000
600.000
35
36
PERSPECTIvES AND TRENDS
PERSPECTIvES AND TRENDS
37
2010
11 %
6: Corporate finance in Germany:
Corporate and loans bonds
in EUR bn
4: Savings rate of
German households
Bonds
Loans
100
2006
Percentage of disposable income
One fundamental requirement for investment and investment
14
financing is met – Germans tend to save a lot. Without savings
13
there can be no investment over the long term, and Germans
12
put aside more than 11 percent of their disposable income on
11
2007
2008
average each year. Americans, in contrast, save only around
10
six percent.
9
2009
1,204
96
1,260
179
1,333
227
1,327
8
7
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Federal Statistical Office
So, the money is there. But there apparently is a lack of investment projects which offer an attractive return; hence, savings
2010
251
1,317
Source: Deutsche Bundesbank
Above all, better regulation aims to remove and prevent wrong
incentives. Only in this way can it bring about more stability in
the German financial sector, and, in the long term, secure
financing for companies to make necessary investments. This
will be no simple task: First, any regulation must avoid giving
rise to competitive distortions in the financial sector. Second,
an in-depth study ought to be made of the combined impact of
all planned regulatory measures on the financial system and its
clients. For instance, loans to the SME sector should no longer
are flowing out of the country, and this trend is clearly on the
be considered as risky as highly volatile trading positions and
rise. The volume of German direct investments (stocks) abroad
securities in terms of banks’ capital requirements. Experience
rose from EUR 197 bn in 1995 to EUR 985 bn in 2009. Includ-
accounted for 78 percent of corporate financing in the European
shows that, in times of crisis, loans to small and medium-sized
ing financial assets and foreign exchange reserves, Germany
Monetary Union, and only 40 percent in the USA. However, this
enterprises exhibit significantly lower losses than securitized as-
5: German direct foreign investment
holds approximately EUR 5 trillion (in 2009) in gross foreign
is changing slowly in Germany. In 2006, the volume of corpo-
sets on banks’ trading books. The SME sector should not be
Volume in EUR bn
assets. Nevertheless, there are many key factors, which argue
rate bonds issued was just under EUR 100 bn, equaling a mere
forced to bear a disproportionate part of the costs of the finan-
1200
in favor of Germany as a place to invest, the main one being its
8 percent of corporate loans. In 2010, corporate bond issuance
cial market crisis. Regulation must be implemented using sound
1000
extremely productive SME sector.
stood at EUR 251 bn, or 19 percent of the volume of corporate
judgement; otherwise, it can easily lead to competitive
loans. Nonetheless, looking at this figure reveals that, despite
distortions for Germany – for both the banking sector and
companies alike.
800
600
SMEs make up 99.7 percent of all German companies. They
companies increasingly tapping the capital market, bank loans
400
dominate the labor market, employing more than 75 per-
by far remain the most important source of external finance.
200
cent of all workers subject to social insurance contributions –
0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
21 million people. These companies also train more than
If the German economy is to continue to grow and remain com-
Source: Deutsche Bundesbank
80 percent of all apprentices.
petitive, Germany has to have a globally competitive banking
2009:
985
EUR bn
sector. But this also means that large internationally operatAll the same, one should not overlook the fact that the vast
ing companies must have access to large, globally networked
majority of these companies have an annual turnover of less
banks. To ensure this, the business models of the German
than EUR 50 m. Owing to their small size, only a low proportion
banking industry must be geared to the needs and the struc-
of small and medium-sized enterprises tap the capital markets
ture of the industrial sector, i.e. of both the SME sector and
as a source of financing. Moreover, additional factors, such as
large corporations. It is therefore essential that the new regula-
transparency requirements, are keeping them away from the
tory framework for banks and the financial markets reflects this.
capital market. This is the reason why so many German SMEs
Markus Beumer Member of the Board
remain dependent on bank loans for external finance. Not only
While the financial market crisis has shown that the financial
of Management of Commerzbank since
in Germany, but in the Eurozone as a whole, companies are fi-
sector does indeed require better, and in some cases, more
2008, responsible for the business
nanced to a far greater extent through bank loans than in capital
regulation, there should only be more regulation where gaps
segment Mittelstandsbank. He studied
markets-based systems, such as that of the USA. In 2010, loans
have to be closed to prevent a further rise in shadow banking.
economics at the University of Münster.
38
PERSPECTIvES AND TRENDS
PERSPECTIvES AND TRENDS
Paving the Way for Change
By Herbert Hirschler
In Germany, public development banks (German: Förderbanken) finance projects for which no funds, or
insufficient funds, are otherwise forthcoming from the market. They offer financing in collaboration with
commercial banks, so as not to compete with them. By doing this, they pave the way for new ideas and
technologies to be widely adopted. They set an accomplished example for development financing.
Financing from German public development banks is provided
only the case in times of economic or financial crises or other
within a clearly defined framework: They perform public devel-
functional disruptions in the markets. This is because the task
opment functions and participate in projects for the common
of development is never completed, not even in highly devel-
good. They finance territorial entities (German: Gebietskörper-
oped nations. The aim here is to respond, within the context
schaften) and special-purpose associations (Zweckverbände)
of Government & Development Finance, to challenges posed
under public law, as well as programmes of a purely social na-
by change, for which the market, at least thus far, offers no
ture. They also make certain types of financing available, such
solutions. Buzzwords like coping with demographic change,
as export financing. This is how their purpose was formal-
environmental protection, or energy efficiency provide cur-
ized in 2002 in coordination with the European Commission.
rent examples. Because Germany belongs to the vanguard in
Facing the
challenges
posed by
change
In order to be able to
these areas, partner nations can also benefit from solutions
perform these func-
found here, should they find themselves facing similar chal-
tions, these develop-
lenges in the future.
multiplier effect, but also how
to make the service available
ment banks benefit
in an efficient way.
from statutory guar-
Finding the right focal points for development is not the
antees and mainte-
only challenge in the area of Government & Development
The success of individual pro-
nance obligations, i.e. joint liability agreements with German
Finance. Another key consideration concerns the approach
grammes can be measured by whether
federal states. This affords them first-class credit ratings and
Providing
the desired
incentive in
a carefully
targeted way
a competitive edge, in that they can obtain funds under better
terms. Since there is a general consensus that the activities
of public development banks must not give rise to competitive distortions, they usually adopt a house-bank approach,
whereby they offer their products through commercial banks.
This approach is owed to the realization that, beyond the
to setting up carefully
German public development banks, in col-
targeted development
laboration with commercial banks, are able
programmes in such
to shape the future in socially relevant areas in
a way as to provide
the desired incentive, avoid free-
a carefully targeted and efficient way. If they are,
they make a valuable contribution to the economy
and financial system in Germany – and far beyond.
rider effects
or
keep
Herbert Hirschler is Spokesman of the
range of products and services already covered by the market,
them to a minimum, and, if possible, use funds
Executive Board at Wirtschafts- und In-
there must clearly be financing needs for which no offers are
in a rotating fashion so as to increase their
frastrukturbank Hessen. A trained econo-
forthcoming. The question whether such arrangements are
reach. The attendant cost-benefit analysis
mist, prior to that he was State Secretary at
necessary even in highly developed countries like Germany
must take into account not only a given
the Hessian Ministry of Economics, Trans-
may be unequivocally answered in the affirmative. Nor is this
development programme‘s intended
port, Urban and Regional Development.
39
40
PERSPECTIvES And TREndS
PERSPECTIvES And TREndS
Investments in …
118 €
MIllIon
130 €
… Education
… Sports
41
MIllIon
14 €
MIllIon
… Urban Planning
… Urban Transport
46 €
Sound Finances for an
Attractive Financial Centre
… Environment
29 €
MIllIon
… Culture
MIllIon
35 €
MIllIon
By Uwe Becker
Other cities are amassing record-breaking debts;
location in great shape in terms of its ability to compete both
stood at around EUR 18.6 bn. Outstanding liabilities and provi-
Particularly given that the German Federal Government will
Frankfurt breaks records in reducing them. This is
domestically and internationally.
sions came to EUR 7.3 bn, equity capital to EUR 9.8 bn. What
be assuming the costs of providing basic social assistance
this balance sheet shows is that the city of Frankfurt and its
for the elderly, which amount to around EUR 90 m annually.
The city‘s solid financial position can also be appreciated in
companies are the guarantors that public services will re-
This improves the odds of getting by without assuming fresh
its financial reporting: At the close of 2009, the municipali-
main at high levels, thereby also assuring Frankfurt’s future
debts. Because avoiding budget deficits remains a priority for
For the first time in 25 years, the City of Frankfurt am Main can
ty‘s capital assets stood at EUR 12.22 bn. This confirms the
viability. Frankfurt is and remains an attractive location to live,
the time being. At the same time new reserves have to be set
report that its municipal debt has dropped below the one-bil-
continuation of the growth trend in municipal assets – at the
work and invest.
aside for times of crisis, as do reserves for maintaining infra-
lion-euro mark. It was EUR 983 m at the end of 2010. Between
end of 2007, the figure was still EUR 11.95 bn. This continu-
2006 and 2011 alone, Frankfurt paid off around EUR 500 m
ous asset growth further attests to the fact that Frankfurt‘s
in debt. At the same time, and unlike many other municipal-
budgetary policy is sound.
the stated budgetary goal of the Frankfurt municipal council (German: Magistrat).
Sound foundation for the future
Solid policy consists of reducing debt and setting aside re-
ities, the city has been maintaining high levels of investment.
These are important signs for the Frankfurt financial centre
structure and investing in assets.
Frankfurt in the black
in two respects: On the one hand, because it means the city
serves in the good years – this has been shown. That way,
even the repercussions of such severe crises as the global fi-
Uwe Becker is the Treasurer of the City
council can work on making the location more attractive with-
Frankfurt am Main is the first major city after the city-state of
nancial and economic crisis can be dealt with without the
of Frankfurt am Main. As department
out having to cut corners; on the other, because the city‘s
Hamburg to publish consolidated annual accounts – not un-
need for cuts. This concept of sound financial policy must
head, he is also in charge of munici-
budgetary position also reflects the economic vitality of Frank-
like the consolidated balance sheet of a business group. Ac-
continue to be adhered to, especially in light of the nascent
pal shareholdings, the Frankfurt Rhine-
furt companies – especially the financial industry. The global
cording to these accounts, at the end of 2009, total munici-
economic upturn. Although avoiding new debts is as great a
Main Region, and the city’s ecclesiasti-
economic crisis, of all things, has left Frankfurt as a business
pal assets including divested businesses and special funds
challenge as ever, it is a challenge that can be mastered.
cal affairs.
42
P e r specti v es a n d T r e n ds
P e r specti v es a n d T r e n ds
43
Solvency II: Supervision Caught in the
Crossfire Between Competition and Stability
By Wolfram Wrabetz
The EU insurance supervisory authority is currently working in Frankfurt on its Solvency II Directive. Its
goal: To assure the greatest possible level of consumer protection, at the same time preserving competition among insurance companies in Europe – quite a challenge, since the higher the standards, the
fewer insurers can meet them. An undesirable consolidation in the industry would be the consequence.
The European Insurance and Occupational Pensions Author-
ing and survival system resting on three pillars: Capital
able to meet its capital requirements. This is because inves-
be endured with great difficulty for another ten years. EIOPA
ity (EIOPA), which just moved to Frankfurt in early January
adequacy with respect to risk, appropriate risk management
tors expect a reasonable return, which will hardly be achiev-
therefore now has to rework the model it most recently put
2011, is required to resolve what appears, superficially at least,
and demonstrable transparency on the part of market par-
able in light of the exorbitant capital requirements. Should a
forward, on the one hand in order to provide maximum
to be a dilemma: Those who advocate unfettered competi-
ticipants concerning the first two pillars. In the five “Quan-
significant number of insurance companies prove incapable
guarantees to insurees, and on the other, to obtain a market
tion in the insurance business must also accept its ultimate
titative Impact Studies” conducted so far, the EIOPA calls
of raising fresh equity capital in the presumably required vol-
with a relatively large number of participants, which is what
consequence: the elimination of unprofitable market partic-
upon insurers to base their calculations on the new rules
umes, it would necessarily lead to a shakeout in the market
makes true competition possible in the first place. These are
ipants as an inherent feature of the system. If, on the other
and to properly assess the consequences of this supervi-
and a more or less extensive oligopoly. This type of market
the challenges facing both insurers and regulators in equal
hand, one seeks to avoid the annulment of insurees‘ claims
sory paradigm shift. The latest study, “QIS 5” now clearly
has long existed in other sectors of the economy, but in the
measure. Frankfurt am Main, as the European capital city of
in the event of one or more insurers going bust, this could
shows that the system has become very exigent and that
case of the insurance markets, it would preclude the pos-
insurance industry supervision, remains at the heart of these
only be achieved by imposing restrictions on competition.
even large market participants will be hard pressed to ­adhere
sibility of widespread competition continuing to exist. How-
developments.
to it – to say nothing of small and middle-tier insurers. The
ever, it cannot be the goal of any state supervisory authority,
In this sense, the intended aims of Solvency II are akin to
reason: Insurers have to put up considerable amounts of eq-
whether theoretical or in terms of its policy on competition,
squaring the circle: The directive is based on the assumption
uity capital commensurate with their risks both on the as-
to deliberately induce a shakeout – not even providing the
that insurers should also act competitively. In other words,
sets and liabilities sides of their balance sheets. As a result,
greatest possible safeguards against system failure could be
the idea is to preserve the competition that entered the mar-
under the new system, large investments in equities or real
cited as a justification for doing so.
ket as it was deregulated in the 1990s. True competition,
estate must be backed up by an insurer‘s own equity cap-
however, is all too necessarily attached to the risk of individ-
ital in amount of up to 25 % of the investment. Even large
Currently being reworked
ual market participants proving incapable of surviving it and
insurers will have difficulty investing more heavily in equities
The EIOPA supervisory authority and the European Commis-
being eliminated. Solvency II is meant to avoid undesirable
than previously. This would not be very desirable in terms
sion have acknowledged these problems and are reworking
Prof. Dr. Wolfram Wrabetz is the CEO
collapses on the part of insurers in the interests of insurees.
of potential returns or the financing of a national economy.
Solvency II. Moreover, transition periods are meant to be long
of Helvetia Germany, and, among other
– up to ten years. Given the dynamic evolution of the finan-
things, Honorary Professor of Business
Weak spots have already been identified
There are, moreover, doubts as to whether the capital markets
cial markets, however, there will hardly be time for such long
and Insurance Law at the House of Fi-
The framework has already been established: Starting in
would be at all prepared to significantly increase their commit-
transitions. In the absence of Solvency II, there exists a su-
nance, and a Delegate of the Hessian
2013, every European insurer must set up an early-warn-
ments in the insurance industry, merely for that ­industry to be
pervisory vacuum in the insurance industry; this could only
State Government for Insurance Affairs.
44
FiNANCiAL CENTRE iNFRASTRuCTuRE
Hubs of Networked Financial Centres
FiNANCiAL CENTRE iNFRASTRuCTuRE
45
The globalisation of capital markets and German financial cen-
this regard, thanks to its cosmopolitan character and its abso-
tres – how do they fit together? The answer is: very well –
lutely reliable and highly sophisticated technologies, financial
provided they are networked with one another. The time has
products and services. Frankfurt has many important com-
come to take leave of the idea that financial centres are purely
petitive advantages over metropolises like London, New York
in predatory competition with one another. On the contrary,
or Tokyo, from which both the local region and its partner re-
Frankfurt‘s strength lies in the symbiosis between elements that are separated elsewhere: marketplaces
global networking creates win-win situations for them all. The
gions all over the world can benefit. This is because Frank-
for private and institutional investors as well as for national and international investors and issuers,
only losers are those who, fearing global competition, feel they
furt has always been able to bring together the best of many
state-of-the-art technology in combination with a human factor, capital for large companies, but also for
must withdraw to the safety of their fortresses. The Frank-
worlds. Frankfurt is no monoculture – not as a city, not as
middle-tier entrepreneurs from Germany, Europe – and far further afield.
furt Rhine-Main region in particular has much to offer as a
a region and not as a financial centre. Frankfurt offers mar-
partner, especially to financial centres in the world‘s emerg-
ketplaces for private and institutional investors as much as
ing nations, whether in Eastern Europe, Africa, Asia or South
for national and international investors and issuers. Frank-
America. And Deutsche Börse Group can play a key role in
furt offers state-of-the-art technology combined with a
By Frank Gerstenschläger
46
FiNANCiAL CENTRE iNFRASTRuCTuRE
FiNANCiAL CENTRE iNFRASTRuCTuRE
47
Privatanleger und Profis
human factor. Frankfurt offers capital for large groups, but
components of Deutsche Börse Group – from derivatives trad-
that seems to be desired politically. This only really boils down
can tap capital with the same ease as middle-tier compa-
also for middle-tier entrepreneurs from all over the world, par-
ing to clearing to securities custody – enjoy even broader in-
to exchanges making sufficiently sophisticated systems and
nies, which perceive better treatment in the hands of Frank-
ticularly the emerging markets.
ternational reach, with Clearstream even spanning the globe.
security features available – and Deutsche Börse does just
furt‘s bank and exchange professionals than they would in
One product for risk management in the interbank market that
that. Arbitrage is an international phenomenon today. 70 per-
the world‘s metropolises. This is particularly the case for Ger-
has stood the test at the Frankfurt Rhine-Main financial centre
cent of the order book volume on Xetra comes from outside
man middle-tier companies seeking to obtain equity capital
With floor-trading and its specialists, Frankfurt is home to one
and that can be used worldwide is Clearstream‘s GC Pooling
Germany. This means that Deutsche Börse is importing liquid-
by means of an iPO or capital increase, or that seek to bor-
of the leading stock exchanges in Germany; it is also home
market for banks, which was developed jointly with Eurex Repo.
ity to Frankfurt. in this context “importing” means that this
row capital in the form of bonds. And this also increasingly
to Europe‘s leading cross-border securities trading system,
GC Pooling‘s outstanding volume crossed the EuR 100 billion
does not just happen by itself – something has to be done
applies to medium-sized firms from all over the world, espe-
Xetra®. These two market systems have been merged into
mark in the first quarter of 2011, an increase of 25 percent year-
for it to happen. Metaphorically speaking, a series of motor-
cially those from Asia.
one since 23 May 2011. This affects nearly 40,000 securi-
on-year. in cooperation with central banks, GC Pooling offers a
ways needs to be built to make Frankfurt a transport hub of
ties – equities and bonds alike. Particularly where the highly
collateralised solution for trading in the interbank market, which
international capital markets. in August 2009, Deutsche Börse
in a study published in January 2011, the Chief Economist at
liquid shares in the German DAX blue-chip index are con-
has suffered from a sustained lack of confidence as a result of
began to operate a new data connection with a capacity of
the Landesbank Hessen-Thüringen, Gertrud Traud, stresses
cerned, Xetra has been and remains the best trading platform
the financial crisis. Without GC Pooling, the financial crisis would
ten gigabits per second between London and Frankfurt. Be-
Frankfurt‘s cosmopolitanism as one of the area‘s special ad-
for all, regardless of size or analyst capacity; access is stand-
have been considerably more severe than it already was and
sides sending trading data, it is also used to distribute mar-
vantages as a financial business location. This is why, accord-
ardised and the same rules apply to all. Thanks to the Xetra
continues to be, at least in Germany.
ket data and it sets a new standard in terms of speed. in April
ing to the same study, Frankfurt is second only to London
2011, Deutsche Börse also made additional improvements to
among European financial centres – and this, without being
the network connections between the two cities.
as heavily dependent on the financial sector as the British
Private investors and pros
®
specialists whose role is inspired by the traditional floor trad-
®
ers, investors continue to enjoy personal attention and hu-
Man and machine
man know-how also on Xetra. This model has been tried and
Another point that the migration of floor trading to Xetra makes
tested for fund trading in structured products at the Frankfurt
clear is that the specialist lends Xetra a human element, which
DAX and middle-tier companies
world, or to be locally isolated? To me the answer is clear:
Stock Exchange as well as at its German/Swiss subsidiary
gives it the best of both worlds. At the same time, Deutsche
The strength of German financial market technology makes
every step towards internationalising financial service provid-
exchange, Scoach. Therefore, the switch to Xetra does not
Börse is operating state-of-the-art high bandwidth data cen-
a strong case for the strength of the German economy as a
ers and infrastructure providers based in the Frankfurt Rhine-
mean that Deutsche Börse is shutting down its trading floor
tres for its customers. On Xetra, the average execution time
whole: namely that Germany is not primarily a financial centre
Main region strengthens the Frankfurt financial centre as
that still provides a very special atmosphere and unique dis-
from order placement to order confirmation has been reduced
at all; Germany is an industrial centre, and is increasingly be-
much as the partner regions involved. Those who seek
play window on exchange trading, which is otherwise such
to a few milliseconds. incidentally, financial centres are once
coming a hub for service providers – as are many emerging
success in the age of global markets must build bridges, not
an abstract affair. Rather, the Frankfurt Stock Exchange has
more gaining in significance on account of this, since geo-
markets in Eastern Europe, Africa, Asia and South America.
fortresses.
introduced a new technological infrastructure, which opens it
graphic proximity − which, with the advent of remote access,
The financial industry generally plays the role of service pro-
up to all Xetra participants – at present “only” all over Europe,
had for a long time taken a back seat − is again a competitive
vider. This particularly applies to exchanges that enable in-
but in terms of technological possibilities, all over the world.
factor among market participants. At greater speeds, a firm‘s
vestors to participate in growth of the real economy, and
physical distance from the exchange computer on which
conversely provide companies with access to capital under
it is not for nothing that after holding a bidding competition of
orders are matched becomes an increasingly decisive factor.
conditions that are regulated, transparent and above all equal
great scope, the Shanghai Stock Exchange chose a system
Behind it all lies an effort to connect different markets and in-
for all. Companies from all over the world can likewise ben-
Frank Gerstenschläger is member of the
based on Xetra years ago – as did the Dublin, Vienna, Ljubljana
formation flows at lightning speed through arbitrage. The fact
efit from this beacon function, particularly those from coun-
Executive Board of Deutsche Börse AG
and Sofia stock exchanges. And our continuing to develop Xe-
that these tasks are largely automated at this point in no way
tries where capital market structures are not yet sufficiently
and Chairman of the Management Board
tra with new partners is not going to change anything in this
jeopardises the system‘s stability – on the contrary: it is the
mature to keep pace with the dynamics of the real economy.
at Frankfurt Stock Exchange. in this ca-
respect – quite the opposite: the system‘s connectivity, per-
only way to determine a universal price-per-instrument-traded
This also leads to a win-win situation. What makes Frankfurt
pacity he is in charge of development,
formance and reliability can only be improved. Plus, the other
within the system of fragmented, competing marketplaces
special in terms of its financing function is that multinationals
sales and operations in the cash market.
capital. What is better, to be globally networked in a globalised
48
FINANCIAl CENTRE INFRASTRUCTURE
FINANCIAl CENTRE INFRASTRUCTURE
Eco-friendly IT from the Cloud
By Hermann-Josef Lamberti
When banks and companies share storage space and computer power on third-party servers, it is called cloud
49
conditions. Moreover, the Frankfurt Cloud is an outstand-
computing project. The advantages include the largest Inter-
ing example for the implementation of the European Union’s
net exchange point featuring excellent data links to all over
“Digital Agenda”, which aims, among other things, to cre-
the world, outstanding data centre facilities and a high con-
ate a European cloud computing infrastructure for research
centration of IT firms. This makes Frankfurt one of the world’s
and innovation.
most important digital hubs, but also a central and attractive
computing. As a result, they no longer have to build up their own IT resources, but can lower their costs and
location for information technology. The Frankfurt Cloud is
help protect the environment. Although this new technology is still just starting out, the “Frankfurt Cloud” is a
Looking ahead, the Frankfurt Cloud sets the Frank-
right on track for the future. The city is therefore well posi-
pioneering pilot project in this area, one that already sets Frankfurt apart in the competition among financial centres.
furt financial centre apart from its global competitors. The
tioned to play a decisive role in shaping the technological
next expansion stage will consist of building out the Cloud’s
and commercial development of the cloud computing model,
Two key factors are decisive for the success of today’s mod-
that is unlike any other in Germany, Europe and the world:
capacity and bringing new participants on board. Once the
thereby enhancing Frankfurt’s competitiveness a financial
ern financial centres: innovation and efficiency. This applies
the Frankfurt Cloud. The project partners are Deutsche Bank,
tests have been successfully completed, financial service
centre over the long term.
now more than ever to IT at banks and companies located
Frankfurt’s Goethe University, Gesellschaft für Schwerionen-
providers, mid-cap companies and start-ups from all sectors
in the world’s leading financial centres – and both factors are
forschung (GSI), a research centre focussing on heavy ions,
will be able to tap into the Frankfurt Cloud’s state-of-the-art,
turning out to be crucial advantages as global competition
and Interxion, a service provider whose Frankfurt data cen-
flexible and efficient IT infrastructure, with only a brief lead
intensifies. But how is it possible to implement pioneering in-
tre houses Europe’s largest Internet hub, DE-CIX.
time. The Frankfurt Cloud will make it easier for banks and
Hermann-Josef Lamberti is member of
companies based in Germany and abroad to launch or ex-
the Management Board and the Group Ex-
pand their business in the Frankfurt financial centre.
ecutive Committee of Deutsche Bank. As
novations in what is considered to be today’s mature IT environment, while noticeably increasing efficiency and without
The four project partners have state-of-the art, effi-
generating disadvantages for the firm’s business operations?
cient IT systems and solutions at their disposal to cover not
COO, he is responsible for Deutsche Bank’s
only their base IT capacity needs, but also what is some-
The Frankfurt Rhine-Main metropolitan region and its infra-
global information technology, operations
The answer is cloud computing – IT from “the
times their highly volatile demand for IT and their peak
structure offer the ideal environment for a successful cloud
management and process management.
cloud.” Using the cloud model, computer power and stor-
loads. Resources are available for the extremely complex
age capacities are requested using an online, self-service
calculations of high-tech research projects as well as banks’
portal from external server companies and flexibly allocated
processing applications on days of peak volumes in market
Frankfurt’s Edge in Digital Infrastructure
within minutes. Cloud computing avoids the potential bottle-
trading. The Frankfurt Cloud also serves as an ideal lab for
By Peter Knapp
necks in a firm’s in-house IT systems. The new technology
the partners to test this relatively new technology. Under ex-
also makes the excess capacities that often exist in a com-
amination are availability, reliability, performance, resilience
Nowadays digital infrastructure in the form of data centre ca-
scalable electrical power supply combined with high-end data
pany’s own IT landscape unnecessary, just like expensive
and security. Initial results are promising, suggesting that the
pacity, fibre optic connections and adequate electrical power
centre space and scalable bandwidth for cloud-based appli-
new investments in hardware and software. Not least, the IT
Frankfurt Cloud will be a great success.
facilities is as important for a business location as the availa-
cations. The same goes for the Frankfurt Cloud, which is
bility of traditional infrastructure. Not many companies can
operated in Interxion’s Cloud Hub in Frankfurt.
infrastructure becomes more efficient for everyone involved,
as unused resources in the cloud can be made available to
Furthermore, the Frankfurt Cloud also represents a valuable
afford to do without high-end digital infrastructure. In order
other users. Power consumption and costs are thus reduced,
symbiosis between the business and research communities.
to do justice to the idea of “computing from a wall socket”,
while CO2 emissions are also lowered, which helps to pro-
As Goethe University and GSI have been able to use the IT
the key factors in cloud computing are scalability and high
Peter Knapp is the Managing Director of
tect the environment.
infrastructure free-of-charge, renowned researchers contrib-
availability in general and low latency at data centres in par-
Interxion Deutschland GmbH, a leading
ute their support to finding answers for unresolved questions
ticular. Interxion’s 13 European cloud hubs provide access to
European provider of carrier-neutral data
Cloud computing is already a reality in Frankfurt. In 2010,
relating to optimum usage and pricing models, efficient ca-
over 350 communications networks and 20 internet exchange
centre colocation services.
four partners joined forces to create an innovative project
pacity utilization, security as well as the legal and regulatory
points. Its cloud hub services are underpinned by highly
www.interxion.de
50
FInAnCIAl CEnTRE InFRASTRuCTuRE
FInAnCIAl CEnTRE InFRASTRuCTuRE
51
Since the outbreak of the financial crisis in 2008,
in shaping international market policies. Competition plays
the financial sector has come under criticism as
an important role in this context. Deutsche Börse is not only
heavy as last was during the Great Depression.
in competition with regional stock exchanges on a national
Exchanges were able to avoid the worst thanks to
level, but it is also and above all in competition with other
Safety Through Transparency
the clearing facilities affiliated to them. Neverthe-
exchange organisations on a global level – and increasin-
less, they too, are affected by changes underway.
gly with over-the-counter trading systems. In derivatives tra-
By Stefan Mai
One thing is clear: the age of deregulation is over.
ding and the post-trade business, this competition has long
since taken place on a global scale. This competition provi-
We live in an age of re-regulation of the financial markets –
des incentive to continuously expand the range of products
and one of the consequences is that greater importance is
on offer and to invest in technology; it is therefore in the best
attached to the role clearing houses play, particularly in deri-
interests of customers.
vatives trading. This is merely consistent with the fact that exchange organisations all over the world, which are committed
to transparency and neutrality and which organise the regu-
Acting in the interest of both parties
lated markets in the global financial economy, have always
Stock exchanges can make markets safer and lend them gre-
argued in favour of intelligent regulation orientated towards
ater integrity – thereby making future financial crises at least
the needs of the real economy and ultimately those of soci-
less likely to occur. The heads of state of the world‘s leading
ety as well. An analysis conducted by Deutsche Börse reveals
nations have repeatedly stressed the need for reforms in over-
that there are two clear priorities for the intelligent regulation
the-counter derivatives markets at the G-20 level. They have
and the restructuring of the financial sector. These are safety
also pointed to the role of clearing houses in this regard: at
and integrity. Previously, the main guiding principle for the de-
stock exchanges worldwide, including Deutsche Börse, clea-
regulated financial sector was greater efficiency. But without
ring houses provide a hedge against the risk of a counter-
safety mechanisms for managing risks, and without the inte-
party default in securities and derivatives trading. With Eurex
grity − provided by regulation and supervision − that protects
Clearing based in Frankfurt and Zurich, Deutsche Börse runs
investors against market abuse, it will not be possible to es-
the largest clearing house in Europe. What makes exchanges
tablish trust in the markets. The trust of the public in govern-
unique in the financial sector is their neutrality – both at the
ment policy makers will also depend on how successful they
clearing and trading level. On account of their intermediary
are in their efforts to intelligently regulating the financial mar-
function, stock exchanges safeguard the interests of issuers
kets, without stifling their capacity to innovate.
and investors in equal measure. They do not speculate. Much
rather, exchanges bring their customers together on neutral
Transparency and integrity through infrastructure
ground, where they share equal rights to accessing market
information and liquidity.
Reliable infrastructure is of crucial importance in guaranteeing integrity and safety on the financial markets. Deutsche
Börse Group brings all these aspects together under one umbrella. In doing so, it lays the foundation for liquidity, transpar-
Dr. Stefan Mai is Executive Director,
ency, efficient price-discovery and effective risk management.
Head of Market Policy & European Pu-
Thus, the Group is of central importance not only to Germany
blic Affairs at Deutsche Börse AG. He is
as a financial hub, but also in terms of Europe‘s competitive-
in charge of Deutsche Börse Group’s po-
ness and the euro zone. And only a location with its own in-
licy strategy as well as the representative
dependent financial infrastructure will be able to participate
offices in Berlin and Brussels.
52
FINANCIAl CENTRE INFRASTRUCTURE
FINANCIAl CENTRE INFRASTRUCTURE
Modern Auditing
Needs to Assess
Future Risks
By Philipp Turowski and Claus-Peter Wagner
53
independent auditors‘ report does not fulfill the expecta-
performance of the financial concern. This requires the
tions of an interested public. In particular the need to provide
auditor to carefully consider how sustainable the business
financial support for some financial institutions stands in
model of a financial institution is. To do this, the auditor has to
contrast to the unreserved statements that had been pub-
evaluate the entire product range as the operational element
lished some months before. Considering the relevance of the
of the business strategy. Do the products reflect the image the
financial markets for the global economy, the extent of their
financial institution presents to the outside world? Have the
global network and the consequences arising from the col-
financial products undergone a sufficiently objective internal
lapse of large banks, there is an urgent need to satisfy these
review? What is the substance behind the risk indicators and
expectations.
what are their limitations? These are just some of the questions to be answered.
Auditors are only legally obliged to verify the proper preparation of the accounts. The duties of the auditors are based on
An international network is needed in today‘s world
a review of past figures to establish their conformity to ac-
If the auditor is to present to the Supervisory Board and the
counting and publication regulations. The legal regulations
Board of Directors a meaningful report as the basis for infor-
for international standards alone comprise over more than
mation and decision-making, then it is necessary to under-
1,000 pages. A further 2,000 pages deal with their interpre-
stand the company in the context of the financial sector and
tation. The regulations governing banking supervision are sig-
to provide appropriate benchmarks. It therefore goes without
nificantly more than that and require the auditor to consider
question that today‘s auditor must look beyond the domestic
and assess them as part of his duties. In the light of the com-
market and seek international cooperation in a global network
plexity and sheer numbers of regulations the standards ex-
within a global market. When considering these challenges
pected of a year-end audit are set extremely high. To satisfy
every interested party needs to be clear that a quality audit has
these requirements there is a need for high quality expertise
its price. If the year-end audit is still considered a “commod-
in understanding financial products, risk controlling and man-
ity”, then this in no way reflects what is actually required.
agement as well as accounting. It is necessary to have an indepth understanding of the banking sector and a network
Philipp Turowski is in charge of the Ernst
similar to that of the global financial market. The governing
& Young office in Eschborn / Frankfurt. Un-
bodies of the financial regulators also expect an audit to pro-
til 2009, he was Managing Partner of Au-
vide the necessary transparency of inherent risks.
dit and Advisory Business Services and
Supervisory Boards and the public expect more
crisis of 1934 that the American Stock Exchange regula-
from auditors than confirming that the accounts
tor, the SEC, was established and shortly afterwards re-
have been properly prepared. They need to un-
vised accounting regulations were introduced. In Ger-
The year-end report to support the Supervisory Board
derstand the extent of the risks that are inherent
many the auditing of annual accounts became mandatory
Beyond the legal requirements, the Supervisory Board
within the business model of a financial institution.
for public listed companies. The recent crisis in the finan-
expects the auditor to support its control responsibilities in
Claus-Peter Wagner is a partner and re-
It is worth the time and money invested.
cial markets has also led to a call for change. Account-
an efficient and effective manner. For the year-end audit a
sponsible for the Financial Services Organ-
ing and banking regulation are once again under scrutiny.
forward-looking element is expected – a retrospective re-
ization (FSO) of Ernst & Young in Germany.
The challenges facing auditors and the demand for more
The role and regulation of auditors is also the subject of in-
view of the accounting issues no longer suffices. The Su-
He has worked for more than 15 years in
regulation have always been at their highest at times of eco-
tense discussion within the EU Commission. The crisis in
pervisory Board requires the audit to consider risks and to
preparing financial statements and consoli-
nomic crisis. It was immediately after the great economic
the financial markets has clearly demonstrated that the
highlight any indicators that could endanger the operating
dated accounts as well as in consulting.
Chief Operating Officer for Ernst & Young
in the CIS.
54
FINANCIAl CENTRE INFRASTRUCTURE
Europe Needs a
Rating Agency
By Markus Krall
55
1. Monopoly structure
Three agencies split 95 % of
the global market among themselves. The lack of competition is manifest in a return
on turnover of 40 % and an
overlapping shareholder
structure.
8. Domestic bias on the part of US agencies
European firms often feel discriminated against where
credit ratings are concerned. This is partly politically
motivated, but also attributable to US agencies’
lack of understanding of European balancesheet and management conventions.
2. Remuneration model
The issuer of a bond is the client and
pays for the rating. Yet a security’s
classification is primarily intended to
assist investors in decision making.
One of the key institutions in the capital markets,
the credit rating industry, failed in the financial
crisis – that much is beyond dispute. The decisive
factors in that failure were the business models
They allowed the US real estate bubble to occur
in the first place and further exacerbated the crisis. Regulation is only part of the solution.
Without the seal of approval of the credit rating agencies, the
3. Additional services
Thus far, the agencies have also
provided consulting services on
how securitizations are to be
structured, with a view to obtaining the best rating possible. Thus,
the agencies were ultimately
valuing their own products.
8
and roles played by the dominant agencies.
ou
av
f
in
s
on
s
a
re
fa
ro
Eu
credit rating agency
n
a
e
rop
7. Regulatory discrepancy
Although countless regulations for
banks, insurers and even central banks
have previously been predicated on
credit ratings, the ratings themselves
have remained practically unregulated.
bubble in real estate could never have developed. The ratings – paid for by issuers – tempted investors and banks into
accepting risky investments as being safe without questioning the securities’ first-class creditworthiness. This division
of responsibilities likewise made it possible and attractive for
US mortgage banks to grant large numbers of loans without
adequately inspecting the quality of the loans.
This misallocation was preceded by a series of institutional
6. Economic cycle myth
4. Liability loophole
The rating is legally considered an
“opinion”, which automatically does
away with any product liability. This
misrepresents the fact that the rating is actually a product that has been
paid for, practically shielding the
agencies from any liability whatsoever
for faulty ratings.
weak spots in the rating industry. The interplay of these weaknesses gave rise to considerable systemic risk, ultimately
5. Quality problems
Severely limited competition along
with a lack of transparency result in
quality problems: rating algorithms
are not published, data is not subject
to quality control, and results are
rarely monitored systematically at
the portfolio level.
The myth of a rating existing independently of the economic cycle falsely portrays ratings as being stable, yet
this is not supported by reality. Keeping ratings constant
throughout the economic cycle not only presupposes that the agency knows in advance
how long and severe a recession will be, but
also that the sensitivity of creditworthiness
to booms and recessions is the same for
all companies and industries. In severe
crises, this leads to downgrades occurring
too late (and being all the more radical for it)
and being perceived by the markets as coming
at the worst possible time.
borne by the taxpayer.
Significant risks still present
While current steps towards stricter regulation of the rating
be achieved if a European rating agency with global reach is
and be afforded the greatest possible independence in or-
Dr. Markus Krall is a Senior Partner
industry do involve some good approaches, they are only
able to establish itself in the markets. Its influence would have
der to avoid conflicts of interest. It should introduce a remu-
and Global Head of Risk Management at
capable of diffusing some of these risk factors. The issues
to be sufficiently great to be able to change the rules in this
neration system for which investors are responsible, and
Roland Berger Strategy Consultants.
of competition and remuneration models remain unaffected.
market by offering a new governance and remuneration
which is exposed with the greatest possible transparency to
Prior to that, he held positions at Allianz,
The monopolistic rating agency structure needs to be aban-
model as an alternative to the systemically dysfunctional sta-
the controlling effects of public scrutiny. This is the only way
McKinsey and the strategic consultancy
doned, and a new business model introduced. This can only
tus quo. The agency should be incorporated as a foundation
to create incentives for ratings of the highest quality.
firm KDB, which he co-founded.
56
FINANCIAl CENTrE INFrASTrUCTUrE
FINANCIAl CENTrE INFrASTrUCTUrE
57
the entire settlement process, simplify liquidity management
Various different proposals have been under discussion at
and reduce transaction costs. Further savings would result
these EU bodies. Suggestions range from a transition period
for companies in the SEPA-zone, given that SEPA payments
following the law’s entering into effect to prescribing a fixed
are only to cost as much as domestic payments. Starting in
date for migrating to SEPA.
2012, customers will have transferred amounts at their disposal after a maximum settlement period of one business
day, which will additionally improve their liquidity. SEPA fur-
Experienced partners helping to implement
the standard
thermore affords banks the possibility of offering their customers additional services, such as managing SEPA direct
For banks and internationally active companies at the Frank-
debit mandates or prior communication of direct debits that
furt financial centre, including Equens’ majority shareholder,
have already been received by the bank.
DZ BANK AG, these discussions in the EU bodies form the cornerstones of important decisions. This is because mandatory
SEPA will be more widely adopted
introduction of a standard format for payments within the SEPA
zone is going to require investment in internal infrastructure, in
But we are not quite there yet: Up until the present, frame-
order for it to be possible to settle payments in SEPA format.
work condition such as formats, processing procedures and
While planning their implementation processes, banks and
rules for cashless payment transactions have varied con-
companies may consider whether they could decrease or even
siderably from country to country. The single nations still
avoid internal investment by entering into a partnership with
regulate their payment transaction markets themselves. The
service providers like Equens. As is always the case when new
standardized format has therefore not taken hold to the de-
product and processes are introduced there is going to be
sired extent since SEPA credit transfers and direct debits
competition among service providers in the area of process-
were introduced. According to research conducted by the
ing SEPA transactions, which will determine not only the price,
European Central Bank, SEPA credit transfers currently con-
but also the scope of service and the overall usefulness for the
Europe Without Borders –
Also for Payment Transactions
stitute a mere 9.6 % of total credit transfers in the eurozone.
customer. Banks will benefit, as will their business customers
The transaction figures of payment service provider Equens
in Europe by extension. Intensified competition will presuma-
bear this out: In 2010, they processed over 100 million SEPA
bly be accompanied by consolidation among payment trans-
transactions. However, this constitutes an infinitesimal per-
action service providers, after which the 25 clearing houses
By Michael Steinbach
centage of the 9,7 bn in transactions processed by the com-
settling payments in the SEPA zone today will be reduced to
pany annually.
four or five. As the largest payment transaction service provider
A unified eurozone for cashless payment transactions has been a reality since 2008 – only that it is not
in Germany, Equens intends to be one of these companies –
mandatory and is therefore little used. Now SEPA direct debits and transfers are to become obligatory.
The reasons were many: In the case of direct debits, a le-
in order for Frankfurt to continue to play a leading role in Euro-
This will require investment in new infrastructure and present many opportunities.
gally reliable transition scenario from the old procedures
pean payment transactions in the future.
to the new SEPA direct debit process has long been lackSix years after the euro was introduced on 1 January 2002,
Europe. Banking customers will no longer experiencee any
ing. Only slight adoption of the new standard for transfers
Michael Steinbach is Chairman of the
the standardization of cashless payment transactions be-
differences between domestic and cross-border payments
had been observed due to the obligatory use of the new
Board of Directors at Equens SE. He was
gan in January 2008. The aim is to create a Single Euro Pay-
in euros. This will be particularly advantageous to compa-
but longer IBAN (International Bank Account Number) and
Spokesman of the Board of Directors of
ments Area (SEPA) – a unified European payment transac-
nies active all over Europe. They would be able to centralize
BIC (Bank Identifier Code) instead of the customary bank
the firm’s predecessor company, before
tion zone. Cashless payments in euros are to be settled in
all their European payment transactions in a single country
account number and sort code. The European bodies
becoming Deputy Chairman of the Board
a standardized format between participating nations across
and settle them through a single bank. This would streamline
therefore wish to make SEPA payment obligatory by law.
of Directors at Equens.
58
F i n a n cia l ce n tre i n frastructure
fi n a n cia l ce n tre i n frastructure
Our Financial
Centre is
Enhanced by
Transparent
Information
59
kinds of instruments are not that widespread among issuers.
provisions of law and the recommendations of the German in-
All this will have changed by the end of 2011, when the EU Di-
dustrial association known as the Central Credit Committee
rective known as “UCITS IV” and citing clear regulatory provi-
(Zentraler Kreditausschuss, ZKA).
sions for investment funds will be incorporated into German law.
This directive defines the requirements securities funds must
Not only are both documents prescribed by law, they
meet in order to be legally sold all over the EU. Use of the so-
will also be of great significance in the competition to curry fa-
called “Key Investor Information Document” (KIID), constitut-
vour with investors. This is because they enable those inves­
ing a whole new generation of consumer information, will be
tors to obtain fast, comprehensive information on investment
mandatory going forward. While the EU exclusively intends for
products on offer, and also to compare them on an interna-
Providing consumers with comprehensive informa-
investment funds to be legally bound to the document, Ger-
tional level. If the Frankfurt financial centre seeks to recuperate
tion on financial products is not only the law, it is
man legislation goes a step further. The Investor Protection and
lost confidence in the markets, then greater transparency and
also becoming a decisive factor in the competition
Functionality Improvement Act (Anlegerschutz- und Funktion-
verifiability for individual services are called for above all other
to curry favour with investors. New services allow
sverbesserungsgesetz, abbreviated AnSVG) cites an equiva-
considerations. KIIDs and PIBs provide employees with ready-
private investors to obtain fast, comprehensive in-
lent document, the Product Information Sheet (Produktinfor-
made information for the consultancy process.
formation on investment products and even to com-
mationsblatt, PIB), which is prescribed for a variety of financial
pare them internationally.
instruments. Both documents, the KIID and the PIB, are in-
People in Germany would go back to investing in se-
tended to provide a simple and effective basis for comparison
curities, if only there were more transparency, and they had
In the ongoing debate on greater regulation of the sale of fi-
among financial products, transparently elucidating their risks
a better feeling for the actual risks involved. With KIIDs and
nancial products, consumer protection agencies and govern-
and characteristics, and thereby providing investors with clear
PIBs those needs are now satisfied – now it is up to investors
ment policy makers are demanding greater transparency in
and relevant information for investing.
to use the information. However, it would be delusional to think
By Edmund J. Keferstein
the European markets. The prices, quality and risks of financial
that there will be no more fluctuations in the markets and
products are to be clearly described and provided with a basis
The introduction of this simplified product informa-
crises going forward. Investors who expect elevated returns
for comparison. Regulators are convinced that this is the only
tion format is a done deal. Before 2011 is out, financial ser-
and assume elevated risks to get them would do well to mon-
way for the market to function efficiently. Yet the fact that risks
vice providers will have to make PIBs and KIIDs available to
itor the evolution of those risks and to react promptly. Suitable
can change over the term of an investment product – some-
their customers in Germany as part of their consulting services.
tools for doing so are already available in the form of KIIDs and
times to an enormous extent – presents one of the greatest
While the provisions coming out of Brussels on the use of KIIDs
PIBs –­they should be used towards further enhancing the
challenges in this respect. The only information services able
are relatively strict, significantly more leeway is afforded where
Frankfurt financial centre and to keep the “grey-zone” capital
to model changes of this nature are those that rate capital in-
PIBs are concerned. The PIB came under fire early on, since
markets at arms length.
vestment risks according to a dynamic system. European De-
the information sheets currently in use at different institutions
www.derivatives-group.com
rivatives Group AG (EDG), a subsidiary of the vwd group, offers
can only be mutually compared with great difficulty. They em-
precisely this kind of dynamic risk rating, which is already be-
ploy greatly varying terminologies and are often bundled with
Edmund J. Keferstein is Chairman of
ing used on a voluntary basis by some large issuers. They per-
promotional info. The vwd group has therefore set itself the
the Management Board of vwd Vereinigte
ceive a competitive advantage in doing so, because EDG con-
task of standardizing the information sheets in collaboration
Wirtschaftsdienste AG, a listed company;
tinuously monitors the risks and quality of the issuers‘ products
with its partners – Allen & Overy, WM Datenservice and EDG –
European Derivatives Group AG (EDG) of-
and makes the information available in transparent form. How-
in order to provide customers with a basis for comparison for
fers finance-related quantitative analysis
ever, the financial industry is still in its infancy, and so far, these
KIIDs and PIBs. The solution is closely aligned with the
and is a subsidiary of the vwd group.
60
I m p rint
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