State-Owned Success

From Stupidest to First

kfw source kfw
The state-owned development bank is more profitable than many of Germany's private financial firms.
  • Why it matters

    Why it matters

    Business is booming for state-owned development bank KfW, which is benefiting from its easy access to low-interest capital.

  • Facts

    Facts

    • KfW’s net profit for 2015 will likely exceed €2 billion, up from €1.5 billion in 2014, a management board member said.
    • While Deutsche Bank and Commerzbank are battling with the fallout of the financial crisis, state-owned KfW is doing well, aided by its access to fresh capital at record-low interest rates.
    • The bank is being criticized for paying a €110,000 loyalty bonus to two management board members for 25 years of service.
  • Audio

    Audio

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It took a single money transfer, at 08:37 in the morning of September 15, 2008, for German state development bank KfW to earn the title “Germany’s stupidest bank.”

The banner headline by Germany’s tabloid Bild newspaper came after the bank’s IT system sent some €320 million, or $361 million, to none other than Lehman Brothers, even though by that time it was already clear that the U.S. bank was bust.

That is long since water under the bridge now. Business is booming for KfW, Germany’s third-largest bank, which is 80-percent owned by the federal government and 20 percent by the 16 regional states.

While bigger private banking rivals Deutsche Bank and Commerzbank are still battling with the fallout of the financial crisis, and European banking stocks are struggling across the board, KfW has rebounded well. It’s been aided by its access to fresh capital at record-low interest rates, thanks to the state guarantee that underpins its business.

Its net profit for 2015 will likely exceed €2 billion, up from €1.5 billion in 2014, management board member Günther Bräunig said last week. Compare that to Deutsche Bank, which lost a record €6.8 billion last year and has watched its share price plunge to record lows as a result.

“It was definitely a very pleasing business year, also as far as profits were concerned,” Mr. Bräunig said.

The key question now facing a state-owned bank like KfW: What should it do with the profits? The bank’s political minders will be watching it closely.

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