Bankers wary on German credit crunch fund idea

 

German banks pledged to help avert a credit crunch for small to medium-sized companies in Europe's largest economy but stopped short of backing Deutsche Bank's proposal to create a common fund.

Deutsche Bank Chief Executive Josef Ackermann on Wednesday proposed creating a fund to prop up the credit ratings of Germany's so-called Mittelstand, a move that would help them get loans as a way to weather the economic crisis.

Ackermann told the meeting that Deutsche would be prepared to make a substantial contribution and warned of continued risks to the world economy from the real estate crisis, a person familiar with the talks said.

Details of how such a fund would work remained unclear as Deutsche Bank declined to comment further.

A government source said the finance ministry would coordinate talks on how the fund would work, adding it was clear no state finances would be used.

Ackermann, who as chairman of the Institute of International Finance bank lobby group is used to coordinating with others, seems to have put forward the idea without consulting key participants, hampering chances of the fund's success.

"We were not consulted on this and oppose an idea whereby all banks pay into a common pot" a spokeswoman for the association of German cooperative banks said.

Germany's banking groups continued to pursue their ownsolutions for averting a crunch.

The DSGV savings banks association said it too had proposed bolstering the capital position of some small to midsize German companies to stave off deteriorating credit ratings - a factor that could inhibit banks' ability to grant loans. 

Weakening credit rating could also force lenders to markdown the loans on their books, hurting profits and straining their balance sheets.

The BdB association of private-sector banks including Commerzbank and Deutsche Bank said the meeting in the chancellor's office went well.

"It was a constructive meeting. We made some progress toward averting a credit crunch" a spokeswoman said. The BdB declined to comment further, saying key details had yet to be worked out.

Economy Minister Rainer Bruederle told reporters such a fund could supply companies with fresh capital in the form of "mezzanine financing" - debt capital that allows the lender to convert it to an equity stake if the loan is not repaid.

Finance Minister Wolfgang Schaeuble said he understood that Ackermann's suggestion meant there would be no state involvement.

Although Schaeuble said there could be no talk of a broad credit crunch, Bruederle said there were signs of a funding bottleneck emerging next year. Earlier, he had threatened banks with regulatory measures if they did not stump up more loans.

"They should be giving out more credit" he told ZDF television. "If they don't do this, the government can either increase liquidity or it can of course resort to regulatory measures" he said without giving details.