Germany's Sleepy Savings Banks Play Wall Street With LBO Bets
Comment of the Day

March 06 2023

Commentary by Eoin Treacy

Germany's Sleepy Savings Banks Play Wall Street With LBO Bets

This article from Bloomberg may be of interest to subscribers. Here is a section: 

LBO lending offered Germany’s savings banks a higher-margin business in the years when ultra-low interest rates were crimping the amount they could earn from retail loans. It also opened up a new customer base in the form of acquisitive private equity firms and gave them a way to maintain historical ties with local businesses being taken over. 

“Nearly half of the family-owned businesses in the Cologne-Bonn region will undergo a generational change in the next few years,” said Uwe Borges, head of corporate banking at Sparkasse KölnBonn, one of Germany’s biggest savings banks with an LBO book in the high double-digit millions of euros. “Where there are no successors, leveraged buyouts are an option.”

His comments are echoed by Kai Scholze, a board director at Kreissparkasse Esslingen-Nürtingen, who said his bank operates LBO financing in part because it doesn’t want to lose customers that get acquired to competing banks. “The margins are of course higher in this business than with corporate financing, but this is also associated with a higher risk.”

Eoin Treacy's view

The generational change question is something every economy is dealing with because the baby boomer generation is aging out of management positions. Many of those businesspeople were instrumental in building thriving companies that occupy important niches in the broader economy. Compensating people for a lifetime of commitment to building a business is in no way cheap. 

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