BY LIAM PROUD

Germany’s big lenders suffer from high costs in an overbanked market offering customers abundant access to credit. But Commerzbank and Deutsche Bank will get a small but welcome boost from an unlikely source in 2020: the generation of entrepreneurs who founded businesses after reunification in 1990.

October 2020 will mark 30 years since the Soviet-backed German Democratic Republic rejoined the Federal Republic of Germany as a single country. It was a rough transition for workers at former state-owned companies in the East: they had to compete on the open market with more competitive rivals, and a stronger currency made their products more expensive than previously.

Amid the chaos, however, entrepreneurship soared. Historian Michael Fritsch calculates that the self-employment rate in the East was just 1.8% in 1989, but had almost tripled to over 5% two years later. By the end of the decade it was almost 10%. 

Success stories include tech-services firm Comparex, founded in Leipzig in 1990 and now part of Switzerland’s $3 billion SoftwareONE. There’s also sparkling wine maker Rotkaeppchen-Mumm Sektkellereien, previously a state-owned group bought out by management in 1993, whose revenue was 1 billion euros in 2018. Many of the companies founded or taken private in the 1990s are part of what Germans call the Mittelstand, or small- and medium-sized companies.

So what does that have to do with Commerz and Deutsche? It’s all about age: An entrepreneur who was, say, 40 in 1990 would now be 70 and thinking about retirement. A 2017 Commerzbank study found that 39% of Mittelstand companies with at least 2.5 million euros of annual revenue expected a change of management within five years.

Corporate financiers are hoping that many heirs would rather sell or merge the family business than take over, for example, a slow-growing manufacturer at the end of an economic cycle. That would mean deals, and therefore fees for bankers.

It might not be a lifesaver for the lenders: just under one-tenth of the companies Commerzbank surveyed had over 100 million euros of annual sales. Still, interest rates are falling and Germany’s economy is slowing, hurting banks’ bottom lines. In 2020, they’ll be grateful for any help they can get.

First published Jan. 3, 2020

IMAGE: REUTERS/Fabrizio Bensch