CERBERUS INTENTIONS

Banks charmed by hounds of hell

Frankfurt am Main
All quiet on the western front but the banks need to get a move on. Source: Getty

After months of mystery and speculation, it is now becoming clearer what private investor Cerberus Capital Management wants from Germany’s banks. Last summer, the powerful American investment company – named after a mythological three-headed dog which guards the gates of hell – acquired more than 5 percent of Commerzbank, Germany’s second-largest bank. In November, it proceeded to snap up at least 3 percent of Deutsche Bank, the country’s largest.

Many observers suspected that Cerberus wanted to engineer a merger between the two troubled banks. Now it seems such a jumbo merger can be ruled out, after sources confirmed to Handelsblatt that the Cerberus CEO spoke against such a linkup during an unpublicized visit to Germany last month.

In meetings with senior figures in government, administration and business, Stephen Feinberg repeatedly insisted that there is room for two major banks in Germany, with no need for them to merge. Originally, when the investor bought the stakes, there was speculation that a merged entity would be better able to hold its own against major French and US rivals. On his visit, Mr. Feinberg also expressed support for Deutsche’s embattled boss John Cryan.

The Cerberus CEO highlighting its successful long-term investment in Austrian bank Bawag.

But Mr. Feinberg also had a harder message for the banks’ managements, saying that both need to intensify efforts to cut costs and simplify structures. More ambition is needed from both companies, he said, according to sources familiar with his conversations.

Deutsche Bank had yet another difficult year in 2017. Although Germany’s stock markets boomed, Deutsche’s share price stagnated. In a statement on Friday, the bank confirmed it will make a loss for the third straight year. Perhaps even worse, investment banking revenues failed to recover, a serious blow for Mr. Cryan. And that’s not all, the Trump administration’s new tax laws may cost the bank around $1.8 billion.

Things aren’t much better for cross-town rival Commerzbank, which saw its share price rise more than 70 percent last year, but if anything this was a sign of weakness. All year, poor earnings and massive layoffs fueled takeover speculation, with Cerberus only one among many possible bidders. After a bailout almost 10 years ago, Germany’s federal government owns a 15-percent stake in the bank.

The famously secretive Mr. Feinberg was accompanied on his visit by David Knower, head of Cerberus Germany, and Frank Bruno, who coordinates the company’s global operations in the financial sector. The group is said to have met with officials in a number of German government departments, the country’s central bank and Bafin, the country’s financial regulator.

Meetings also took place with senior executives at Deutsche Bank and Commerzbank, as well as CEOs from several major non-financial firms: Cerberus is said to be interested in purchasing divisions demerged by the firms.

64180562_1800 Stephen feinberg cerberus
Bronx-born. Princeton-educated. Secretive. Rich: Cerberus' Mr. Feinberg Source: PR

The chance to speak directly to Mr. Feinberg was particularly welcomed within the financial sector, where Cerberus’s acquisition of stakes in Commerzbank and Deutsche Bank last year set off a wave of speculation. In addition, the American firm, together with financial investor JC Flowers, is bidding to buy HSH Nordbank, a publicly-owned bank which European regulators insist must be sold by the end of February.

In all of his meetings, Mr. Feinberg reassured officials that Cerberus is a long-term investor, concerned with making the banks more efficient. He pointed out that the firm held financial industry investments longer than it did in other industries, highlighting Cerberus’ role with the Austrian bank Bawag, where its investment lasted 10 years, ending with a stock market flotation last October.

For many years, Mr. Feinberg has aimed to improve relations in German financial and political circles, even hiring former ministers as consultants. This time, he appears to have made a good impression.

The meetings are said to have been friendly. “He wasn’t just paying lip service on the question of long-term investment,” said a person familiar with the meetings. Several sources said they were impressed by the American CEO’s detailed knowledge of the problems facing German banks.

08 p04 Shareholder’s shares of Cerberus-01

Mr. Feinberg’s charm offensive comes at a time when his company needs goodwill among German government and regulatory officials: if Cerberus’ bid for HSH Nordbank is successful, it must be approved by the country’s regulatory bodies, including Bafin. Bidding for the Hamburg-based bank closed on Friday and there have been three bids so far, according to news agency Reuters. Alongside the consortium around Cerberus, which already owns around 5 percent of the bank, bids were made by the US private equity investor Apollo and by London-based Socrates Capital. In the coming weeks, the German states of Hamburg and Schleswig-Holstein, the bank’s majority owners, will decide which bids will go forward to formal negotiations.

The Cerberus approach appears to have prominent supporters at the bank. Last week HSH supervisory board chairman Thomas Mirow told financial newspaper Börsen-Zeitung that Cerberus’s treatment of Bawag showed that the financial investor could “take a totally strategic perspective,” and was not solely interested in plundering for quick profits. Music to Mr. Feinberg’s ears, no doubt.

Handelsblatt journalists Michael Maisch, Daniel Schäfer, Martin Greive and Jan Hildebrand contributed to this article. To contact the authors: maisch@handelsblatt.com, d.schaefer@handelsblatt.com, greive@handelsblatt.com, hildebrand@handelsblatt.com

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