Postbank’s chairman have prompted more speculation that Deutsche
Postbank, Germany’s biggest commercial retail player, could soon be
sold. Commerzbank and Deutsche Bank have both expressed an interest
in buying Postbank, which made record profits in 2007. William Cain
reports.
Speculation that Deutsche Postbank will be swallowed up by one of
Germany’s big banking groups to create a national banking
powerhouse has intensified during the country’s reporting season.
While most of Germany’s top institutions reported uninspiring
full-year figures, there has been frenzied talk of a merger
involving Postbank and either Commerzbank or Deutsche Bank.
Commerzbank and Deutsche Bank have both made public their interest
in buying the bank, which has 14.5 million customers and, including
post office outlets, more than 6,000 branches. When questioned
about whether he was interested in buying Postbank, Deutsche Bank
chairman Josef Ackermann said he would “rule nothing out”. At a
press conference for the bank’s annual results, he added: “If
someone approaches us about Postbank, we are ready to talk.”
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And Postbank’s chairman, Wolfgang Klein, did little to quell
speculation when he said: “I have a preferred bidder in my
heart.”
Media speculation
Takeover talk has been fuelled further in recent weeks by claims in
German newspapers that government officials would support a
takeover of Postbank, although the country’s finance minister
declared the reports “speculative”. The uncertainty surrounding
Postbank’s future started in November 2007 when Klaus Zumwinkel,
the former chief executive of Deutsche Post, which holds a 50
percent stake in the bank, said its role within the group was to be
considered.
Deutsche Post, the German mail and logistics group, is losing money
on its DHL Express operations in the US and faces a more
competitive domestic market as the German mail industry is
deregulated. It has also been plunged into controversy after
Zumwinkel resigned following tax-evasion allegations and was
replaced by Frank Appel.
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By GlobalDataIf a merger did go ahead, it would bring further consolidation to a
fractured German banking market, which is made up of around 2,000
banks. Germany’s entrenched three-pillar system, which consists of
private sector banks, regional and local savings banks and
co-operatives, means it is hard for private banks to gain any scale
or market share.
Co-operatives make up between 20 and 25 percent of the retail
banking market, and the sparkassen, which are small
savings banks, have a 40 to 50 percent market share. It leaves
little room for manoeuvre for Germany’s big commercial players
Deutsche Bank, Commerzbank and Allianz’s Dresdner Bank. And it
makes Postbank’s retail banking market share of around 9 percent
seem all the more valuable.
Michael Steinbarth, a director in ratings agency Fitch’s financial
institutions team, said: “If we see a domestic buyer with an
established retail banking platform take over [Postbank] it would
create a competitor at the same level in terms of market share as
the combined co-operative banking sector. In terms of competition,
it would create a bigger player, a better franchise and potentially
there would be a better potential for operating profit, because
size really does matter in this market.”
The key issue will be what price it would take to gain a
controlling stake in Deutsche Postbank. Another important factor
will be whether Deutsche Post will sell its entire stake in
Postbank. Steinbarth added: “There is the consideration that
Postbank acquired 850 branches from Deutsche Post in 2006, which
Post would still want access to. It is also good to have a stake in
a cash-generating business like Postbank, so I would be surprised
if Deutsche Post would consider selling their entire stake.”
Calls for consolidation
Since the start of the US subprime collapse, leading German banking
figures have been calling for industry consolidation, although most
of the activity has been at the landesbanken level. The
landesbanken are regional banks which act as centres for
trans-regional payment systems and clearing houses for the
sparkassen. Some of their activities in the international
financial markets got them into trouble in the middle of last year.
Sachsen LB, the landesbank that operates in the Saxony
region, had to be rescued by Stuttgart-based Landesbank
Baden-Württemberg (see RBI 584, 579).
WestLB, which is focused on the North Rhine-Westphalia region but
has operations across the world, has been hit by heavy subprime
losses and is being linked with Landesbank Hessen-Thueringen (known
as Helaba). There has also been the ongoing saga of IKB, which
specialises in lending to small businesses: it has been bailed out
three times since last summer by the government because of
subprime-related losses.
While a potential Postbank sale fits broadly into the backdrop of
German consolidation, it is being driven by different forces. It is
not involved in the landesbank sector, and a sale is not being
forced by subprime write-downs – indeed, Deutsche Postbank has
announced a set of record figures for 2007, with profit topping the
€1 billion ($1.5 billion) mark for the first time (up 6.7 percent).
In its retail banking segment, net income was €944 million, up 2.2
percent from the previous year. It wrote down €51 million from
subprime-related investments in the fourth quarter.
Postbank improved its cost-income ratio from 66.7 percent to 64.8
percent. It reached a target of adding 1 million new customers by
2008 (4 percent year-on-year growth), while new checking accounts
showed double-digit growth at 25 percent. The bank said it was
disappointed only with its performance in home finance products,
which it put down to difficult market conditions.
The bank’s management stated an ambitious profit target of between
€1.4 billion and €1.45 billion by 2010, and predicted a figure of
€1.22 billion at the end of this year. But it warned there would be
limited year-on-year growth early in 2008, and said cost savings
would be important in achieving the targets – the bank plans to
reduce its cost-income ratio further, to below 58 percent by 2010.
It will also offer an improved product range and additional
services for existing customers to try to improve customer
retention.
Analysts at investment bank Keefe, Bruyette & Woods (KBW)
described the results as “pleasantly uneventful”.
Steinbarth at Fitch said: “At the moment, the strategy of Postbank
is more product based – they are trying to develop existing
customer business. They are coming from a state-owned background
and are now trying to become a more sales-focused company.”
Branch investment
Postbank launched a branch revamp at the end of 2007 (see RBI
582), focused on better branch design and footprint, better
product choice and better customer communication. It is part of the
company’s wider drive to increase cross-selling. The initial
campaign involved branches in five cities across Germany, and is
intended to be expanded to the 850 branches the company acquired
from Deutsche Post in 2006. Deutsche Postbank spokesman Hartmut
Schlegel told RBI the scheme had yet to be rolled out
further.
Postbank’s retail banking push comes at a time of seemingly flat
growth in German’s banking industry and in the face of largely
negative sentiment about business over 2008. Commerzbank announced
figures in line with expectations, driven mainly by its
mittelstand division, which takes business from small- and
medium-sized companies. Its retail division made a profit of €401
million in 2007, after a loss of €122 million in 2006 due to a
one-off expense from integrating Eurohypo, the commercial and real
estate bank it bought in 2005. The bank has around 850 branches and
3.9 million private customers.
Deutsche Bank was subprime-free in the fourth quarter, although it
wrote down €2.2 billion in the third quarter. It reported a €6.5
billion profit for 2007, a 7 percent increase on 2006. Ackermann
said conditions would remain challenging in 2008, but still
targeted an €8.4 billion profit target for 2008.
Reinhold Leichtfuss, managing director, Frankfurt, at Boston
Consulting Group, said results had been fairly flat in the German
retail banking sector. He added some of the sparkassen and
banks in Germany’s co-operative sector had shown declines in their
interest income, but cost savings were enabling many to avoid
declining profit figures.
He said: “There has been margin pressure in 2007, strong
competition, but on the other hand banks have been quite successful
on the cost front and have not allowed big cost increases, so they
have been seeing slight profit increases, but smaller than the
years before. We have seen some results which have showed quite
significant reductions in the interest income in the
sparkassen and co-operative sector.
“I think the market has been competitive for two reasons. You have
a high number of banks which are ‘price attacking’. Then, in
addition, because of the country’s size, it has attracted foreign
competitors so the banks have become used to [more competition]. I
think we will see 2008 and 2009 proving even more difficult than
2007.”
