Germans like to think of their economy as the “engine” of the eurozone: when it comes to bailouts for countries such as Cyprus it is to Berlin that its currency partners turn. But this role of eurozone champion, and backstop, is not universally appreciated by either the German electorate or those of the rescued countries.
To purchase printed copies or a PDF of this report, please email leonie.welss@lseg.com and shahid.hamid@lseg.com
Lieber ein Ende mit Schmerzen als Schmerzen ohne Ende, the German proverb goes: Rather a painful ending than endless pain. It would be hard to begrudge any Germans who felt that way about the state of the eurozone, an apparent blob of economic torpor that appears to offer little more than an apparently unending nightmare: a comedy and a tragedy, rolled into one.
Lack of supply means Pfandbrief issuance is likely to be down by a third this year, but demand is such that pricing in single digits over mid-swaps is now the norm.
Berenberg is a staid 400-year old private bank, yet it is also the bright young thing in equity capital markets.
The eurozone malaise is holding back deal-making in Germany as corporates look to preserve balance sheet flexibility. But there are positive signs that sponsor-led deals will provide some relief for deal-hungry loans bankers. Buyers and investors are being highly selective when it comes to the deals they will back. Non-cyclical industries are popular but the valuation has to be right.
Automotives are still at the centre of the German corporate bond market, but demand for German paper has seen issuance from lower rated companies and even unrated ones.
The performance of Germany’s car giants in the bond markets is a reflection of what is happening in the real economy as they swerve past Europe’s slowdown and map out the route to success in China.
Landesbanken have been through a process of balance sheet restructuring and strategic review. Stability now seems to have returned to many of the regionally-controlled banks, but questions remain over their future role and purpose.
The listing of Evonik had long been planned but when it eventually came to fruition, five years after initial exploratory talks, it was with an alternative structure which makes it an IPO like no other.
With bank liquidity scarce for some borrowers, and investors on the hunt for alternative assets, Schuldscheine are proving to be a global hit.
With little yield elsewhere for the risk averse investor, German property remains attractive. Total transaction volumes should hit €27bn this year.
With no significant hedge or private equity fund industry to accommodate, Germany expects a relatively smooth transition to the Alternative Investment Fund Managers Directive although even here it will drive some notable changes.
KfW has proven itself as a true renaissance financial institution and a significant player in the capital markets. Regulatory developments have, however, complicated its relationship with the banking fraternity.
To view the digital version of this report, please click here.