Big Banks

The German Patients

  • Why it matters

    Why it matters

    Despite Germany’s position as Europe’s economic powerhouse, the country’s two biggest banks are lagging behind other European institutions and still suffering the consequences of the financial crisis that began 10 years ago.

  • Facts

    Facts

    • While other major European banks are back to earning billions, Deutsche Bank and Commerzbank are still losing money.
    • Some bankers blame the banks’ problems on a difficult domestic market.
    • Other major European banks, like ING, successfully repositioned themselves after the financial crisis.
  • Audio

    Audio

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What's going wrong with Germany's top banks? Source: DPA [M]

Both Commerzbank and Deutsche Bank have managed to negatively surprise investors with miserable quarterly results, causing their share prices to tumble. Ten years after the beginning of the financial crisis, Germany’s largest private banks still have not managed to shake off its consequences. This increasingly makes them outsiders in Europe, where most major banks have returned to earnings in the billions. Even worse, the competition has surged so far ahead that it is increasingly difficult for the German banks to catch up.

When it comes to the economic balance of power, there is a strange contrast between Germany and the rest of Europe. The German export machine is driving the continent, and unemployment is lower in Germany than in many other countries — and so are loan defaults. But while Spanish, Italian, French and even Irish banks are making good money again, German banks are lagging behind.

There is one number that manifests the problem: 59 percent. This is the ratio of the share price of German banks to their tangible assets. In other words, investors are leery and value the assets of Commerzbank and other major banks at about 40 percent less than the banks themselves. This places German financial institutions at the lower end in the euro zone: Investors have more confidence in the crisis-ridden Portuguese banks.

But why are Germany’s two major banks not making any headway? What’s going wrong?

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