The unthinkable became true when the German government agreed to the demands of the European Commission to abolish state support for Landesbanks and savings banks last month. German private banks were quick to announce their interest in taking over some of the 562 savings banks, which have a market share of around 50% – the highest share of public banks world wide. But it might not be that easy. Although the agreement catapults the process of consolidation of Germany’s overcrowded banking sector into a higher gear, it won’t happen in the very near future.
The reason is that whereas the Gewährträgerhaftung (guarantee obligation) will be abolished, the Anstaltslast (maintenance obligation) will merely be replaced “in order to comply with the following principles,” reads the agreement. “The financial relationship with the public owner shall not be different from a normal commercial ownership relation governed by market economy principles just as between a private shareholder and a limited company.”
The private banks, which initiated the process by a formal complaint to the Commission in 1999, take this to mean that the public-law institution will be transformed into a joint stock company or something very similar.
But this is certainly not what the finance ministry thinks. It says it will not “abolish” the Anstalstlast, but “modify” it to comply with EC competition rules. This makes a huge difference.
The Anstaltslast requires the public sector sponsor (the Anstaltsträger) to keep the public law institution financially viable, i.e. in a position where it can pay its debt at all times. Because of its existence the Gewährträger-haftung – the owner’s direct obligation to the creditors to meet all liabilities – had never been called upon, and was shed by the banks without any tears. Not so the Anstaltslast. Once this is abolished, there can be no Anstaltsträger and thus no public-law institution.
Oliver Blass, a lawyer in the unit for public banks at the ministry of finance, says that what will be removed is the owner’s obligation to provide financing to its bank with unlimited liability. In the case of a bail-out the owners will have to get the Commission’s approval just as any other shareholder.
Any legal changes to the Anstaltslast will only refer to the financial behaviour of the public owners and not to the second aspect, the political binding. “We don’t want to throw out the baby with the bath water” he says. “The savings banks remain public law institutions owned by the municipalities and communes. This also means that a public-law bank can only be sold by changing the savings bank law in the federal states.” It is not clear, however, whether a savings bank could sell its assets and remain a dormant shell.
The German government has to propose how to make the Anstaltslast compatible with EC law by the end of the year. So far there are no details on how to do this, but lawyers are working to find a solution that contains limited liability while keeping the communes as Anstaltsträger – and not shareholders.
If the Commission agrees to the proposals, they will have to be implemented by the end of 2002 – if not it will have to start a formal procedure against the German government.
If the Anstaltslast is modified as planned, the short to medium term effects on many savings banks will be moderate in as far as they can rely for funding on their deposits.
The first evidence of restructu-ring will be seen at the 13 Landesbanks. Moody’s and Fitch’s financial standalone ratings (the creditworthiness without the guarantees) indicate a rating of a mere single-B or even C minus for WestLB, the largest Landesbank.
The Landesbanks are short of capital. WestLB wants to attract new capital by setting up a stock company for the commercial business while keeping development business in the public law bank. This split model does, however, require a certain size which none of the other Landesbanks has.
The model for the Bayerische Landesbank could be an alternative. The bank plans to put a holding company into the current structure so that other entities can invest capital. Of course, the most sensible solution to Landesbanks’ capital require-ments would be to merge with the savings banks. But political realities are likely to prevent this.
The public law banks have another four years – instead of the 10 they demanded – to put restructuring in place. The legal changes will provide a platform upon which each institution can set up their own restructuring model. Bernd Luethje, secretary general at the Association of German Public Sector Banks is optimistic about the Landes-banks’ future: “They have always been able to find new opportunities and were never granted much capital. In fact, the Landesbanks will now enter or expand more risky business areas such as real estate financing or structured finance. If anything, they’ll become a bigger threat to the private banks.”
As for the banks’ liabilities existing at July 18 2001, they will be covered by Anstaltslast and Gewährträgerhaftung until the end of their maturity. Liabilities issued after that date until July 18 2005 will also be covered as long as they expire before 31 December 2015.
After 2005 bonds will be rated according to the Landesbank’s long-term ratings which credit researchers expect to settle around single-A.
