FRANKFURT (AFP) — Leading German finance and banking figures are pushing sector consolidation in the wake of the US subprime housing market crisis and possible takeover threats from abroad.
"The situation is serious," Finance Minister Peer Steinbrueck told a banking conference here on Tuesday in reference to problems that have hit German banks and financial institutions in recent weeks.
Two groups, regional bank SachsenLB and IKB, which specialises in lending to small businesses, were heavily exposed to defaults in the US high-risk home loan sector and had to issue distress calls for help from other German banks.
But Steinbrueck underscored the occasion provided by domestic market turmoil to consolidate the sector, a recurring theme in light of Germany's fragmented financial landscape.
"The Landesbanken (regional state banks) must use the opportunity to combine their strengths now," he said.
As the world's leading exporter, Germany needed more than just one or two banking heavyweights, the minister argued.
German banks also need to protect themselves against hostile takeovers, from foreign hedge funds for example.
As a result, "it is right that consolidation be on the agenda," in particular regarding the country's regional banks, Steinbrueck stressed.
The German banking sector is roughly divided into three branches, private banks, public banks and mutual or cooperative banks.
The publicly-owned regional banks have already begun to merge, with the Stuttgart-based LBBW buying SachsenLB to avoid the latter having to close shop.
The German minister also echoed an admonition by Deutsche Bank chairman Josef Ackermann to banks that had lent excessively to the subprime US housing sector which threw international markets into turmoil last month.
"I share the evaluation of Mr. Ackermann," that such practices demonstrated a poor understanding of the risks involved, Steinbrueck said.
Ackermann, the head of the biggest German bank, had earlier issued his own call for German banks and financial institutions to gather under fewer but stronger roofs now that the financial storm appeared to be passing.
"There are many small banks, in a fragmented market," and they should "join forces, one way or another," Ackermann had told his peers.
"We will come out of this stronger," he promised.
That view was shared in part by Heinrich Haasis, president of the German savings banks' federation, the DSGV.
But Haasis favoured alliances between the publicly-owned banks represented by his group and regional banks, while he opposed takeovers by private groups like Deutsche Bank.
In particular, Haasis called for a tie-up between regional giant LBBW and WestLB, which was weakened by a financial scandal unrelated to the subprime crisis.
He also reiterated opposition to the mooted sale of a 38-percent stake in WestLB to the US investment fund JC Flowers, and deemed it unlikely.
Ackermann, meanwhile, downplayed fears the US housing market debacle would spark a much larger credit crunch, saying earlier Tuesday in a statement: "In the last few days, there have been signs that markets have begun to stabilise."
The banking boss said he was "optimistic about the environment globally for financial institutions" because they would contain the subprime crisis with help from regulators and central banks.
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