Status: 01/27/2022 08:24 a.m
Not only major US banks, but also some large European financial institutions are creating double-digit billions in profits again. The largest German private banks are a long way from that. What are the reasons?
By Constantin Röse, ARD Stock Exchange Studio
In the Frankfurt skyline, the skyscrapers of Commerzbank and Deutsche Bank are among the really big ones. In the financial world, things are very different. In Europe or the USA, German banks are only average in the industry. The others make high profits in the tens of billions.
Why it is like that? This is still a consequence of the financial crisis of 2008 and 2009. While banks in the USA were rescued with gigantic financial packages, the aid in Europe was significantly less, explains Christoph Schalast from the Frankfurt School of Finance. “In the end, the American banks emerged stronger from the financial crisis, while the European banks tended to be weaker,” said the expert. “In addition, a bank like Deutsche Bank, especially before 2007, 2008 relied on US investment banking and took big risks that it is still nibbling on today.”
Smaller market shares in the business with private customers
A peculiarity of the German market makes matters worse. The savings banks and Volksbanks dominate and compete with the private banks. “The market shares that a Deutsche Bank or a Commerzbank has in private customer business, for example, are significantly lower than abroad, in Spain or in France, where the markets are much more consolidated,” says Philipp Hässler, banking expert at Pareto Securities.
So there are fewer competitors. That is why banks in Spain or France can also get better prices for themselves. Nevertheless, they cannot compete with the powerful US investment banks such as JP Morgan or Bank of America. The boss of the Spanish Santander Bank, José Antonio Alvarez, knows that too. The problem with banking in Europe is the relatively small capital markets, he says. They are fragmented and not well developed. “If you don’t have a strong home market, it’s difficult to compete globally.”
US banks tend to advise on IPOs
Big banks from the USA, on the other hand, have it easier as they don’t recognize any national borders in their market. And so they accompany the largest mergers and acquisitions of corporate clients and make hefty profits in the securities business.
That’s bad for German companies that need such services, says banking expert Hässler: “Anyone looking for a global investment bank for an IPO in the US will first think of the big US investment banks and not immediately of Deutsche Bank, for example.”
This is convenient for US banks, as they also want to continue growing in Europe. The largest American bank, JP Morgan, intends in the future to open up primarily to medium-sized companies. Money houses like the French BNP Paribas are more serious competitors than a German bank.