Politics

Tighter antitrust law

The minister for the economy, Rainer Brüderle (FDP) will, as the coalition agreement states, rework the Act on Restraint of Competition and allow the possibility of breaking up market-dominating firms. According to his draft presented in January, the Kartellamt will also be able to act pre-emptively, even where a company does not abuse its monopoly position. To date, the antitrust watchdogs could only prohibit or allow mergers, and break up companies only where there was a merger despite a ban. According to the new bill, the Kartellamt is to be able to force firms to sell or hive off parts of their assets, where they have achieved a market-controlling position. There are, however, massive rule-of-law objections to pre-emptive action, which the CDU also shared. Thus, it is unclear what sector the Act is aiming at. While among those mentioned were Deutsche Post, energy companies, the food sector and the health sector with hospital companies and health-insurance companies, creating a possibility of pre-emptive break up was nonsense, stated the CDU rapporteur Georg Nüßlein. German energy companies, headed by RWE, have even had a study done, according to which the Brüderle Act is not needed in the energy sector. The bill is to be discussed in cabinet on 24 March.

Boom in D&O insurers

The financial crisis and big corruption cases like the one at Siemens could mean that so-called D&O insurance will become considerably dearer, says a study by consultancy firm Simon-Kucher. According to it, German insurance managers stated in a survey that 70% of customers were willing to pay more for directors’ and officers’ liability insurance. Price increases of around 20 to 30% were realistic, said the study. In general, the sector was growing, since small businesses too were increasingly seeking insurance against management errors. The market volume could double from its current 300 to 500 million Euros. Some 75% of insurers had announced growth rates of up to 20%, said Simon-Kucher. In the course of the crisis, particularly liability insurance in the banking, investment-companies and financial-firms sectors had drastically risen. However, in the round of contract renewals on 1 January 2010 there had been a slight easing, said US insurer Chubb. Meantime, the own-risk excess for managers in the event of damages has been readjusted. With the entry into force of the Act on the Appropriateness of Executive Remuneration, managers must bear 10% of the amount of damages themselves, though with a ceiling of 150% of their annual fixed salary.

New insolvency law for banks

German finance minister Wolfgang Schäuble (CDU) wants an act on rehabilitation of ailing banks, to create the possibility for banks to reorganize themselves through insolvency proceedings. The healthy part of an insolvent bank would be detached and transferred to another bank or a new vehicle. On this model, the institution’s equity-capital providers might lose all or part of their capital.

Financial-markets oversight goes to the Bundesbank

As agreed in the coalition agreement, the German government wishes to bring financial oversight, including oversight of banks, insurance companies and securities, fully under the umbrella of the Bundesbank. The parallel operation of the Federal Financial Services Oversight Panel (BaFin) and Bundesbank had not proved efficient, runs the justification. Combining them under the umbrella of the Bundesbank would also integrate German banking oversight better into the European oversight system. Additionally, the Bundesbank was organizationally independent of politics, and thus able to take unpopular decisions. At present Ba- Fin still comes under the Federal Ministry of Finance. In the meantime Axel Weber, the head of the Bundesbank, has called on credit institutions to take advantage of the favourable capital-market environment to strengthen their equity capital. Otherwise, Weber threatened regulatory intervention. Federal finance minister Wolfgang Schäuble (CDU), however, announced he wished to make the financial sector share in the cost of the financial crisis, and was working on a German act limiting bank managers. According to it, in future bankers would receive neither guaranteed bonuses nor bonus payments linked to short-term successes. Institutions themselves receiving State aid would, moreover, be able to pay only limited remuneration to their board members. Also under discussion was a rescue fund to which banks would pay in according to their systemic importance.

Two bad banks hived off

So far only two credit institutions have taken advantage of the option allowed by the government of hiving off toxic securities and non-strategic business sectors to a so-called bad bank: Landesbank WestLB and the nationalized Hypo Real Estate (HRE). As part of the consolidation model under the bad-bank arrangement WestLB had hived off some 85 million Euros worth of possibly defaulting securities and business areas that no longer fit its strategy, out of its total budget of some €258 billion. The remaining bank would receive a silent contribution from the government of three to four billion Euros. By 2011 this rump bank is supposed to be sold. HRE also applied in January for the setting up of a Bad Bank. Problematic and non-strategic government bonds and realestate credits with a volume of up to €210 billion were to be hived off. By contrast with the farther-reaching consolidation model, the time limit for applying for a special-purpose company to which only toxic securitiesbwould be hived off expired at the end of January.

BaFin warns life assurers

Jochen Sanio, head of the Federal Financial Services Oversight Panel, warned life assurers at the institution’s New Year reception that they should no longer promise their customers such high yields. To date the assurers’ business has been based on betting on capital investments with enough yield to cover their interest promises. However, current interest levels raised doubts about this model. Sanio said he saw it generally as a danger to insurers, who should in the first place cut their surplus participation to insured people.

Is a stock-exchange turnover tax coming?

In order to load part of the costs of the financial crisis onto the banks, willingness is growing in the CDU to levy a stock-exchange turnover tax. Among its advocates are chancellor Angela Merkel (CDU), who hopes the levy will bring the institutions to a greater responsibility and awareness of risk: “The banks must do justice to their responsibility for the damage they have caused.” If a transaction tax of 0.05% were levied at EU level, the tax proceeds would on initial calculations amount to €160 billion. The biggest opponent of the stock-exchange turnover tax is the FDP, fearing that it would particularly hit small investors and those saving for retirement. Up to 1991 there was already such a tax in Germany, which was then overturned by the black-yellow (CDU-FDP) coalition governing at the time.