Savings Culture

Bull, Bears and Squirrels

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German savers prefer the squirrel to Frankfurt's bull and bear. Picture source: Reuters

Germans distrust the stock market. Even after years of low interest rates, most German savers prefer to put their money in the local savings bank instead of taking a chance on stocks.

It can’t help that the head of Germany’s main stock exchange is under investigation for insider trading and state regulators might remove him from office because he is “unreliable.” This does not inspire trust, and a tax incentive for stock market investments, as proposed by one of the country’s political parties, is not likely to help.

Under these circumstances, many executives would avoid the spotlight and keep a low public profile. But not Carsten Kengeter, chief executive of Deutsche Börse, which operates the Frankfurt Stock Exchange. Instead, to the surprise of many in the audience, Mr. Kengeter took his turn at the podium at the annual Handelsblatt banking summit in Frankfurt, pleading his innocence not just in so many words but by the very act of showing up.

Could it be a swansong? According to those in financial circles, Mr. Kengeter’s future at Deutsche Börse could be decided in the next few days.

“The firm has to distance itself from the illusion of satisfactory underperformance and become more dynamic as a competitor.”

Carsten Kengeter, CEO, Deutsche Börse

There is talk of a €10.5 million fine against the stock market operator in exchange for closing the investigation on insider trading. The company’s board and management would have to agree to that, and it would still leave open the regulators’ questions about Mr. Kengeter’s reliability.

When asked how secure his job feels, the former investment banker responded, “That is a question that is difficult for the one affected to answer.” Does he regret taking on the job? “I’m always in favor of deep learning experiences – and this is one.”

The insider trading probe concerns purchases Mr. Kengeter made of his company’s stock before talks of a merger with the London Stock Exchange were made public. The announcement led to a sharp increase in Deutsche Börse stock, though the merger plans subsequently fell through. Mr. Kengeter has maintained he did nothing wrong, and reiterated this defense at the conference.

Not surprisingly, in this context, Mr. Kengeter said he was not looking now for any cross-border mergers. Deutsche Börse has tried four times in the past two decades to merge with a major rival – three times with LSE and once with the New York Stock Exchange. The last effort with LSE failed in the shadow of Britain’s vote to exit the European Union.

Rather than try a fifth time, Deutsche Börse is focused on technology investments to transform the stock exchange into a digital platform. The company remains too sluggish for his tastes. “The firm as such has to distance itself from the illusion of satisfactory underperformance and become more dynamic as a competitor,” Mr. Kengeter said at the conference. “There’s a lot to do.”

Whether Mr. Kengeter will be around to do it, or whether a digital platform will truly spur interest in stocks among German savers, remains to be seen. Less than 10 million Germans hold stocks, out of a population of more than 80 million. That compares to nearly half in the United States.

The reluctance to invest isn’t just a challenge identified by the stock exchange itself. Another speaker at the conference spoke in favor of tax incentives to encourage stock market investment. Christian Lindner, leader of the Free Democratic Party, said the government should eliminate capital gains taxes on stocks held longer term, leaving it only on speculative, short-term investments. “Whoever holds a security longer, say to take care of old age, should get the capital gains tax-free,” he said.

Mr. Lindner’s party has a good chance of entering a coalition government with Chancellor Angela Merkel’s Christian Democrats, based on polling ahead of this month’s national elections. He didn’t specify how long stocks had to be held to avoid the tax, but until 2009, Germany had no capital gains tax on shares held longer than 12 months. Since then, capital gains have been subject to a 25-percent withholding tax across the board.

If Mr. Lindner gets his way, only time will tell whether that is sufficient incentive for German savers to change their habits. The squirrel, who gathers nuts all summer for the winter, has long been the symbol for savings banks in Germany and elsewhere in Europe. For now at least, the little squirrel has the bulls and bears of the German stock market beat.

Andreas Kröner is a financial correspondent for Handelsblatt, based in Frankfurt. Darrell Delamaide is a US-based editor and adapted this story for Handelsblatt Global. To contact the author: kroener@handelsblatt.com

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