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Running for the Door: German Giants Flee Wall Street

By Eric Kelsey

With expensive accounting rules, an increased threat of litigation and hundreds of millions of dollars in fines for some firms, the once prestigious New York Stock Exchange and other American markets have become unattractive to Germany's biggest companies. Daimler and Deutsche Telekom have fled this year and the few remaining are likely to follow.

Photo Gallery: German Firms Say Goodbye to NYSE Photos
AP

On June 18, the symbol of the German company Deutsche Telekom, DT, made its last run across the ticker at the New York Stock Exchange. Europe's largest telecom company left the world's biggest and most recognizable exchange after nearly 14 years of trading.

The company is currently in the process of delisting from all foreign exchanges and will soon only be traded on its home stock market in Frankfurt.

Deutsche Telekom is just the latest German blue chip to say goodbye to the American capital market. In an emblematic departure, Daimler, the first German firm to be listed in New York in 1993, officially quit trading on the NYSE on June 4, saying that it no longer needed a presence in New York to attract international investors. And Munich-based insurance and financial services giant Allianz abandoned the NYSE last fall.

The recent retreat of German firms from the American capital market has been nearly a decade in the making. Tighter regulations introduced by the United States government in the wake of the accounting scandals in the early 2000s brought extra oversight and added costs for foreign companies listed on the NYSE. Of the 11 firms on Germany's DAX index of blue chip companies that were at one time listed on the NYSE, only four still remain: Deutsche Bank, Fresenius, SAP and Siemens.

Why German Firms Went to New York

"In the 1990s, there was a great euphoria for joining the American capital market, especially for mergers and acquisitions" says Rüdiger von Rosen, the managing director of the Deutsches Aktienenistitut, an association that represents publicly traded German companies.

The 1990s and early 2000s was the era of the mega merger on Wall Street, highlighted by the $81 billion merger of Exxon and Mobil in 1999, and the ill-fated $164 billion merger between AOL and Time Warner in 2000.

Daimler's $36 billion marriage with Detroit automaker Chrysler, commenced in 1998, underscored the thought that a listing on the American capital market meant that German companies could compete with American rivals to gobble up competition and expand their international presence. Giant German firms like Siemens, Allianz and SAP could offer simple stock swaps to acquire other firms listed on American exchanges. Deutsche Telekom, for example, used its position on the NYSE to aquire a handful of mobile telephone operators and turn its T-Mobile subsidiary into the United States' fourth-largest mobile carrier today.

A listing on the American capital markets also brought with it a certain prestige for foreign companies. In addition to offering German firms greater access to institutional investors, it also meant the firms would be closely monitored by Wall Street analysts, which in turn could attract new investors and establish a higher profile for the companies internationally.

All but three of 16 German companies that are or were at one time listed on the NYSE began trading on the exchange before 2002, riding the mergers and acquisitions wave of the 1990s -- just before the US government stepped up compliance rules with the Sarbanes-Oxley Act, which became law on July 30 of that year.

Sarbanes-Oxley

The attractiveness of the American capital market to German firms began to erode with Sarbanes-Oxley. In the wake of accounting scandals at large US companies like Enron and WorldCom, the law tightened regulations on public companies listed on US stock exchanges.

Named for the law's co-sponsors, Paul Sarbanes, a Democratic Senator from Maryland, and Michael Oxley, a Republican Congressman from Ohio, the law tightened accounting practices to prevent companies from cheating on investors. From the start, companies voiced their displeasure with the high costs required to comply with the reforms. In one provision, companies were obligated to hire an independent auditor to monitor and report on the company's financial reporting. The regulation was meant to protect investors from fraud, create greater transparency of a firm's risks and to expose accounting firms that were helping companies cook their own books.

Even so, "some companies have said that the American capital market is more attractive than before," says Georg Stadtmann, a German professor of business and economics at the University of Southern Denmark who studies financial markets. "Accounting rules put a mechanism in place that makes companies suddenly aware of risky parts of their business."

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