Two decades after they gave up trying to become a major force in local corporate finance, U.S. banks in Germany have settled for less-ambitious but better-focused activities.
Citicorp has a profitable consumer bank; J.P. Morgan & Co. and Bankers Trust New York Corp. run capital markets activities, asset management, and advisory services; and State Street Corp. is expanding custodial services and asset management.
Bank of New York Co. and American Express Bank focus on trade finance and correspondent banking, while Chase Manhattan Corp. has targeted global payments and sectors such as project finance. Regional banks, including First Chicago NBD Corp., handle U.S. corporate customers in Germany and German companies with operations in the United States.
A glance at downtown Frankfurt explains why U.S. banks have narrowed their ambitions. There are more than 400 foreign and domestic banks in Germany's financial capital, ranging from one-person representative offices to the towering, glass-encased headquarters of Germany's Big Three banks- Deutsche Bank, Dresdner Bank, and Commerzbank. In between are hundreds of foreign bank branches, local savings banks, and specialized consumer and commercial banks.
"Germany is overbanked," said Michael W. Kelly, head of American Express Bank GmbH, the German banking unit of American Express Bank. "There are opportunities, but only if you're highly focused and you know what you're doing."
Given such conclusions, U.S. banks appear unlikely to repeat their earlier mistakes, when they opened branches throughout Germany, sent in teams of expatriates, and then turned off the tap when the economy slumped after the two oil crises of the 1970s.
Instead, the 11 U.S. banks with offices in Germany are relying mainly on local management. They are concentrating on areas in which they have an advantage and serving as a bridge between the U.S. and German financial markets.
"We try to sell U.S. products in a German way," said Volker Loeser, first vice president and general manager in Frankfurt at First National Bank of Chicago. "We try to serve as a mediator between different systems." Despite the narrower goals, U.S. banks have carved out a few enviable positions in the German market.
Chase Manhattan is the fourth-biggest clearing bank in Germany, and Morgan is a top player in mergers and acquisitions, trading, and capital markets. One of the biggest success stories is Citicorp, which runs Citibank Privatkunden AG, a $10 billion-asset Duesseldorf-based consumer bank with 300 branches and 2.9 million customers, and Citibank AG, a Frankfurt-based corporate bank.
Citicorp, which posted a 33% rise in net profits last year in Germany, to about 163 million marks, or around $93 million, is viewed by many German bankers as a model to emulate.
For German banks, the big changes are still ahead. One of the biggest threats to their profits is the continuing integration of European financial markets and the pressure this puts on margins in Germany's still fragmented, $5 trillion-asset banking system.
The other main threat is sluggish economic growth. Both are spurring growing talks of consolidation. "It's still open when the race for concentration will start and who will take over whom," said Hans Henning Offen, vice chairman of Duesseldorf-based Westdeutsche Landesbank, Germany's fourth-biggest bank. "But you will see mergers of savings banks, cooperative banks, private banks, state-owned banks."
Consolidation has been under way for some time. The number of banks in Germany has declined from 4,468 in 1987 to 3,506 as of April this year. Had it not been for the addition of 421 East German banks when the two Germanys reunited in 1990, the decline would have been even more dramatic.
But in a sign that merger mania is starting to gain momentum, two of Germany's biggest banks-Norddeutsche Landesbank and Berliner Bank-have agreed in principle to a combination that will create Germany's second- largest bank, after Deutsche Bank.
Bankers speculated that the next mergers could well be between Deutsche Bank and Bayerische Vereinsbank or between Dresdner Bank and Bayerische Hypotheken- und Wechsel-Bank.
Mergers among the hundreds of savings banks, cooperative banks, and other local credit institutions also are gaining speed, bankers said.
"Consolidation will not only strengthen German banks' competitive position at home, it will also significantly enhance their international standing," said Jens Westrick, general manager for Norddeutsche Landesbank in New York.
The other main concern-Germany's sluggish economy-may be more difficult to solve. Since 1990, the German government has pumped more than 800 billion marks ($465 billion) into rebuilding the former East Germany. No one is willing to predict it will not have to pump in as much again during the next five years.
Meanwhile, a construction and consumer boom spurred by reunification has collapsed, triggering a dramatic slowdown in the economy and pushing unemployment above 12%. High labor costs and taxes and a complex regulatory structure also are prompting many German companies to expand abroad rather than at home.
"Germany finds itself in somewhat of a quandary as increasing unemployment threatens to bog down an economy that is finally beginning to show signs of a recovery," said Betty J. Starkey, a sovereign risk analyst at Thomson BankWatch Inc., an affiliate of American Banker. "Unemployment continues to be Germany's nemesis."
Still, there is a growing conviction that Germany's economy is already on the rebound. "It's typically German to be pessimistic, but I'm optimistic," said Joern Hinrich Capeller, vice president for corporate finance at Citibank AG. "The economy is in good shape, even if we have structural problems."
"We're not making any spectacular forecast for growth, but we're certainly on the optimistic side," said Joerg Henzler, an economist at J.P. Morgan GmbH, the Frankfurt-based German banking subsidiary of J.P. Morgan & Co.
