French banks challenge local loyalty of Germany's Mittelstand

Wed Mar 19, 2014 9:46am EDT
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By Andreas Kröner and Lionel Laurent

FRANKFURT/PARIS (Reuters) - France's big banks are embracing an unlikely challenge - to prise away some of Germany's mighty Mittelstand of small and medium-sized enterprises (SMEs) from their local banking partners.

BNP Paribas (BNPP.PA: Quote), France's largest bank by assets, wants to boost its German business by over a quarter by 2016. To achieve that, it will have to pick off select SMEs, which in Germany make up about 18 percent of the economy outside financial services, compared with 6 percent in France and 7 percent across the European Union.

If a bank can establish a relationship with such Mittelstand companies - often highly specialized manufacturers - it can mean a partnership stretching for decades, making it a valuable source of earnings despite low profit margins.

But Germany's SMEs already have long-standing partnerships with local lenders that pass on their lower funding costs.

BNP does not aim, therefore, to usurp the Mittelstand's so-called house banks, usually a local savings bank or co-operative bank, but instead take on large national players such as Commerzbank (CBKG.DE: Quote), Deutsche Bank (DBKGn.DE: Quote) and UniCredit's HypoVereinsbank (CRDI.MI: Quote), which support firms' more complicated transactions.

Germany's savings banks have over 40 percent of the Mittelstand market, followed by co-operatives with around 20 percent. Private banks such as Deutsche Bank, Commerzbank and BNP have around 14 percent.

"The idea to expand business with middle-sized companies isn't new ... (but) it makes a lot of sense for us to target bigger 'Mittelstand' companies more intensively, because we can meet their needs around the world," said Torsten Murke, the deputy chairman of BNP's German operations.

That means courting people such as Christian Sedlatschek, the chief financial officer of Meggle, a Bavarian dairy with worldwide sales of 1 billion euros, who already does business with 10 banks and is loath to change.   Continued...

Bernd Supe-Dienes, director of the 1913 founded German industrial knife manufacturer Dienes poses for a picture behind an industrial knife model at the workshop of his company in Overath near the western German city of Cologne March 19, 2014. REUTERS/Wolfgang Rattay