German Chancellor Angela Merkel and Deputy Chancellor and Foreign Minister Frank-Walter Steinmeier before the cabinet meeting Monday.Foto: DPA
The cabinet of German Chancellor Angela Merkel has approved a rescue package for the country's banking sector but so far few banks are rushing to avail of the massive bailout. The government met before the opening of the markets on Monday morning to sign off on the €500 billion ($674 billion) rescue deal that had been rushed through both houses of parliament on Friday. The move marks an attempt by the government to protect Germany's banking sector from the ravages of the global financial crisis. The cabinet, made up of members of Chancellor Angela Merkel's conservative Christian Democrats and their coalition partners, the center-left Social Democrats, set a number of strict conditions for any banks that accept the state funds.
The bailout plan includes up to €400 billion ($538 billion) in lending guarantees for banks, plus as much as €80 billion ($107 billion) to recapitalize banks and, if necessary, buy up risky assets. Each bank will be allowed a maximum €10 billion for recapitalization while the state would spend up to €5 billion per bank to assume bad securities. However, unlike the packages in the United States and in the United Kingdom, in Germany it is up to the banks themselves to request state support.
Any bank that signs up will have to put up with the government having a say in how it does business and will be required to set "appropriate" salaries for its top managers. On Monday the cabinet decided that salaries above €500,000 would be deemed inappropriate, although exceptions could be made. Banks would also have to scrap many severance and bonus packages.
In exchange for the bailout the banks would also be required to allow the government to examine their business policies and give it the right to force institutions to reduce risk-taking activities. Any dividends paid by participating banks would have to go back to the state rescue fund.
Banks Take Closer Look at Offer
So far most German banks have balked at stepping forward to receive the government funds for fear that such a move would send their shares into free fall on the still volatile markets. However, over the weekend Bavaria's public sector bank BayernLB indicated it may accept of the package. Bavarian state Finance Minister Erwin Huber, who is also chairman of the board at BayernLB, told the Bild newspaper in an interview published on Monday that the bank's board would meet on Tuesday to discuss the package. And Martin Blessing, the head of Germany's second biggest bank Commerzbank, has also said his institution would take a close look at the deal. Deutsche Bank CEO Josef Ackermann last week ruled out accepting any state aid.
Government Criticizes Deutsche Bank CEO
The German government lashed out at Deutsche Bank CEO Josef Ackermann on Monday for criticizing the rescue package. Chancellor Merkel's spokesman Thomas Steg said that Ackermann's comments that he would be "ashamed" if Deutsche Bank had to accept state aid were "incomprehensible and unacceptable."
Steg said that Ackermann's comments could dissuade other financial institutions from signing up for the rescue package. He pointed out that, in fact, companies that did so would be acting very responsibly. Steg said the fact that Ackermann had called for a systemic solution made his criticism of it all the more incomprehensible.
Bailouts across Europe
Meanwhile, across Europe governments continue to try to shore up their banking industries, with the Dutch government on Sunday agreeing to make €10 billion available to the Netherlands' largest financial services company ING. The company had suffered a battering on the markets on Friday, with shares plummeting by 27 percent. The capital injection seemed to have worked on Monday, with shares rebounding by more than 20 percent at the start of trading.
On Monday the Swedish government outlined its plan to support the country's financial institutions, including credit guarantees and a bailout fund. Stockholm announced that financial firms' liabilities would be guaranteed up to a level of 1.5 trillion Swedish crowns ($205 billion) while 15 billion crowns would be set aside for a stabilization fund.
In France the crisis claimed its first scalps on Monday when the top three executives at Caisse d'Epargne, one of the country's biggest banks, were forced to resign under pressure from the government. Chairman of the board Charles Milhoud, CEO Nicolas Merindol and chief financial officer Julien Carmona, announced they would step down late Sunday night after the board met to discuss the €600 million lost in trading derivatives during the stock market collapse earlier this month. President Nicolas Sarkozy said the bank's top management should "face the consequences" of the heavy losses which were announced on Friday. Last week the French government put in place its own €360 billion rescue package to ensure its banks would not collapse.
smd -- with wire reports