Financial Aid for Ailing Firms: List of German Companies Needing Help Grows Longer

• Print
• E-Mail
• Feedback

 

According to Eick, Arcandor satisfies the strict criteria for government loan guarantees, because it was neither insolvent nor heavily indebted before the July 1, 2008 cutoff date. Eick insists that his company's banks and business partners have not lost a single cent to date, and that Arcandor needs the loan guarantee to "temporarily" bridge the "lack of viability of the financial markets."

But the problems of department store subsidiary Karstadt can hardly be blamed on the financial crisis. Rather, they are the result of past management decisions that accelerated the chain's decline. The department store business model seems to be outdated. The future lies with specialty outfits like clothing manufacturer H&M, consumer electronics chain Saturn, shoe retailer Görtz and large shopping centers that now offer what was once the department store's stock in trade: variety under one roof. Because of these factors, many politicians within Berlin's coalition government take a critical view of Arcandor's eligibility for bailout assistance. Nevertheless, it seems likely that the government will approve the company's request.

The members of the relevant committees are not exactly comfortable with their decisions, fearing that a fact-finding commission could start asking unpleasant questions in a year or two. Chief among those questions could be whether taxpayer money was frittered away.

Is Infineon a Candidate?

Computer chipmaker Infineon is another company that is in constant crisis. The former subsidiary of electronics giant Siemens needs about €1 billion ($1.35 billion) in fresh capital. And when it comes time to refinance its loans in the summer of 2010, the technology giant will not be able to count on the banks. But why should the government bail out Infineon, a company which, except for two years, has lost money every year since its founding? Its weak numbers were caused by many factors, but certainly not by the global economic crisis.

The IT firm, troubled by bitter leadership struggles, lacked a convincing strategy for years -- and apparently still lacks one today. Besides, most of Infineon's plants are located in high-wage Europe, while its competitors produce their products in Asia. In fact, the only reason the government is even considering Infineon as a bailout case is the company's role as an important supplier to the automobile industry. If it failed, German automakers would be completely dependent on foreign suppliers.

The same argument could benefit automotive supplier Schaeffler, which is pressing the government for €4 billion ($5.4 billion) in loan guarantees. Schaeffler came into financial difficulties after its takeover of another automotive supplier, Continental, a company three times its size.

But even if the government did not come to its aid, Schaeffler would hardly be at risk. If it became insolvent, the family that owns the company would likely lose its assets, and Schaeffler's banks would probably be forced to write off portions of their loans. In return, they would take over Schaeffler and seek a new investor. In other words, a government bailout is not imperative.

Porsche is also responsible for its current precarious situation. In October 2008, the Stuttgart-based company held a 42 percent stake in VW shares and had only €3 billion ($4.1 billion) in debt. It was only the purchase of an additional share package that increased the debt to €9 billion ($12.2 billion) and triggered the luxury carmaker's current financial problems.

Half a Million Isn't Half Bad

A Porsche spokesman insists: "We do not need any federal or state loan guarantees." In this regard, the Porsche case differs from that of other companies. Nevertheless, Porsche urgently needs an additional loan of €2.5 billion ($3.4 billion), partly to finance its current operations. And it hopes to receive at least a portion of that loan from the government, if necessary.

Not too long ago, Porsche executives were poking fun at government bailouts. When the company released its financial statements last November, option transactions were responsible for profits actually exceeding turnover. CEO Wiedeking and CFO Härter, who had collected more than €100 million ($135 million) in compensation between the two of them, were in high spirits.

Härter joked that if Porsche ever ran into problems raising money, it could also slip under the bank bailout umbrella provided by the Special Fund for Financial Market Stabilization (Soffin), Germany's €500 billion ($682 billion) bank bailout package passed last autumn. He was aware of one of the consequences: a cut in his own salary. Companies that avail themselves of the fund are expected to reduce the compensation of their senior executives. "Five-hundred thousand isn't half bad," Härter said, slapping Wiedeking on the back.

The two men could be in luck. The Germany Fund established after the Soffin, which they could very well end up using, includes no salary cut requirements for executives.

By Dietmar Hawranek, Christian Reiermann, Wolfgang Reuter and Janko Tietz

• Back
• 1
• | 2

• Part 1: List of German Companies Needing Help Grows Longer
• Part 2: Who Should Get the Money?