"The emergence of the German public-sector borrowers has probably been the most important single feature of the international primary debt capital markets during the 1990s," says the head of syndication at one of the bulge-bracket US investment banks. Few people would argue with that.
Last year, the special institutions and the Landesbanken in German raised more than Dm50 billion ($29 billion) outside their traditional domestic markets. Given their excellent credit ratings, the frequency of their borrowings and their receptiveness to new financing ideas, it is no wonder the investment banking path to Germany is increasingly well trodden.
At L-Bank's airy, glass-panelled offices in picturesque Karlsruhe, visitors arrive thick and fast. More than 50 banks cover the AAA rated German borrower and vie for the attention of vice-chairman Christian Brand, head of funding Stephan Tribull, and his deputy, Helmut Stermann.
The rocket scientist members of the party might then match their skills against Thomas Keller, the derivatives and options wizard who is head of asset and liability management. L-Bank's first external financing (in Swiss francs) was completed in 1989. Since then the bank has raised more than Dm100 billion in the international debt markets.
Brand, 45, is a career banker who is one of the most powerful voices in the state affairs of Baden-Württemberg. He has been the leader in raising L-Bank's image outside Germany as one of the top quality and most innovative borrowers in Europe. Having been a lending banker and now a big borrower, Brand has sat on both sides of the table. He plays down the difference between the two functions. "It's more a case of two sides of the coin," he says.
Does the flood of visitors sometimes become overbearing? From the 50 covering banks, Brand and his team receive about 25 funding proposals a week - each is meticulously logged in the bank's "indications book". Personal visits are restricted to two or three a week. "We had to have a clampdown when it became one a day," says Brand.
How does the Brand team decide on allocating mandates to its covering bankers? L-Bank is no pushover. "They know exactly where the market is, and I mean every market, and all of those in-house PhDs provide a formidable intellectual back-up," says a UK originator who visits the bank regularly.
Brand avoids selecting personal favourites among the investment banks. However, he and his colleagues value advice from those banks with "their fingers on the pulse" including not only the coverage officers but the analysts, traders and salespeople who can sense a borrowing opportunity. Although L-Bank has a reputation for leaving little on the table it does not select new issue managers on the basis of the cheapest deal. "The banks who know us well recognize that we have a highly focused strategy and favour a 'less is more' approach," comments Brand.
L-Bank's approach to borrowing is straightforward. It does not have a precise Libor-based cost of funds target. It looks at funding proposals on their tactical and strategic values as well as their theoretical worth. However, internal borrowing objectives may be expressed in terms of Deutschmark Libor, since the bank reverses proceeds back to that benchmark in 99% of all transactions.
The bank is flexible on currencies but borrowings are confined generally to the leading currencies. "We prefer to have current bond issues forming a yield curve in each of the major currencies rather than spread ourselves across the lesser arbitrage alternatives which might at a later stage cause problems for interest and principal repayments," says Brand.
As one of the more regular Euromarket borrowers, L-Bank can't please everyone. When the bank issued its first US$1 billion deal in January 1995 (lead-managers CSFB and Goldman Sachs), there were howls of outrage. Brand is unrepentant, saying the bank was the only major financial institution to be able to borrow US dollars in that size for several months; he later received an award for the best German borrower of the year.
However, he prefers to talk about the successes of L-Bank's global issues and the recent Dm750 million and Dm2 billion parallel bonds lead-managed by JP Morgan. But size is not the sole measure of success. Brand recalls a modest Sfr150 million borrowing where the savings spread was doubled through judicious negotiation with a wider group of market participants.
Rather than the "slash 'em, burn 'em and forget 'em" policy which was once the hall-mark of certain Euromarket borrowers. L-Bank spends time and money on maintaining close relationships with investors. It pays special attention to the distribution of L-Bank issues.
For retail targeted offerings Brand admires the sales networks of the European and Japanese houses although he remains sceptical about the take and hold demand from east Asia outside Japan. In terms of institutional placement and market making, he considers the large US houses the general market leaders.
How much friendly competition is there between the special institutions within Germany such as L-Bank, let alone the Landesbanken? In terms of market recognition, borrowing frequency and investors' acceptance L-Bank is usually compared with Kreditanstalt für Wiederaufbau (KfW).
Is there much rivalry between the two houses? While friends say they haven't seen fur flying there is no doubt the two institutions watch each other's every move. KfW borrowings carry a federal government guarantee and, based in Frankfurt, it maintains close relationships with the Bundesbank.
Does L-Bank like to remind KfW that it is 17% owned by the state of Baden-Württemberg or that it has yet to complete its first global borrowing?
A German banker, now based in London, says: "They are both absolutely top-class institutions but perhaps KfW is still more rooted in its traditional domestic business which gives L-Bank a modest intellectual and technical advantage."
Apart from the famed think-tank sessions with bankers at the Maurach Monastery, where has Brand managed to stamp his personality on L-Bank and attract the envy of rival institutions, gossip columnists, and jet-setting party goers?
Look no further than L-Bank's occasional summer balls, the talking point of the Euromarkets. Two years ago it was a glow ball where guests lit up the attention of others. Photographs included veteran Euromarketeer, William de Gelsey (who remembers Orion Bank today?) wearing a miner's lamp and a Goldman Sachs partner trying to underwrite a team of Brazilian limbo dancers.