German Finance Minister Schauble Says Universal Banks Could be Split Up
July 30, 2012 • 8:13AM

Things are starting to move in Germany, too. In an interview Sunday with Welt am Sonntag, which has been picked up widely by European media, German Finance Minister Wolfgang Schäuble said he would "not exclude to split up universal banks." Welt had referred to Nikolaus von Bomhard, CEO of Munich Re, "who is proposing to split up universal banks such as Deutsche Bank, i.e., to separate commercial banks and investment banking. Do we need such radical restructuring?" Schäuble first said: "I estimate Mr. von Bomhard highly, and I always listen very carefully to what he says. However, in Germany, our present problems have little to do with the existence of universal banks."

Welt: "This is little help to the German taxpayer, since the collapse of one big financial institution could shutter half of the continent." Schäuble replied: "That's true. And that's why I do not want to altogether exclude the proposal for splitting up universal banks. If it is proven that Europe has a need for such a step, Germany will not resist."

Just before, Schäuble had said that financial markets need "a framework" in which to act and that "all of us went too far with the deregulation starting in the end of the 1990s." Then, ten years later, financial markets had to be saved at the expense of the taxpayer, which he claims, was necessary to prevent worse from happening. "But now, we must take care to impose rules, which prevent a repeat."

Already Saturday, the weekend print edition of Süddeutsche Zeitung (SZ) ran a two-page feature with three articles focussing on the history of deregulation in Germany, with a rundown of the red-green and CDU-CSU/FDP deregulation of financial markets, in which Deutsche Bank had played a crucial role. "The gardeners of money" created the whole mess, and now nobody wants to be responsible for it. They also did not neglect Jörg Asmussen, who now has to repair what he played a crucial role in bringing about. One article on how the "casino royale" developed, correctly starts off with the takedown of the Bretton Woods fixed-exchange-rate system, and then goes through the various subsequent phases, including the repeal of Glass-Steagall.

It is clear, that the proverbial "elephant in the room," namely Deutsche Bank, cannot be ignored any longer, as its role in the Libor/Euribor outrage stinks up the house. FAZ's Saturday online edition has a lead article on "scandal banker" Anshu Jain, the new head of Deutsche Bank, who before was responsible for the London-based investment banking. FAZ writes, that his past is catching up with him, even if no concrete wrongdoing so far has been proven. FAZ points out that Ackermann had tried to prevent him from becoming his successor, and warned "constantly" both before and during the financial crisis about legal risks in investment banking. Jain was already accused of "grave shortcomings in quality management" and lack of transparency during those years. The consequences for the bank, says FAZ, are incalculable — ranging from EU1.04 billion according to a study by Morgan Stanley, not including compensation payments. Lawsuits are going on in the U.S., and in Germany, the law firm Nieding and Barth is seeking investors who would consider legal claims. In any case, the reputation of Deutsche Bank suffers more "with each lawsuit." So, Jain and his crew of investment bankers will probably be the fall guys, for whatever the financial elite now deems necessary to prevent worse damage.

Apart from Deutsche Bank, Commerzbank and the state banks (Landesbanken) WestLB, Bayern LB and LBBW are being investigated by BaFin, the German financial regulatory agency. Altogether, eight German financial institutions have had to "explain" their Euribor calculations. In Europe, besides Barclays, Royal Bank of Scotland and UBS are being investigated for their role in the Libor/Euribor outrages. Arrests have been in preparation since early last week, say the media.

Picking up on this motion, Prof. Stefan Homburg of Hannover University, who is advising the plaintiffs in the Karlsruhe suit against the ESM, yesterday had a long article in FAZ on the ESM, which highlights all the crucial points. Under a subhead, "A Fundamentally Corrupt System," he points out the immunity of the ESM and the lack of any outside control. Then, he says, "After the so-called salvation of AIG, at least U.S. Congressmen were able to find out by filing suit, which big banks got about $100 billion; named were Goldman Sachs and Deutsche Bank. German parliamentarians will not be able to receive similar information. The ESM treaty is a fundamentally corrupt system."