West Germany: Where Bankers Are Boss

After more than a decade on top, one of West Germany’s richest postwar wonder boys has come tumbling down. A big plunger in coal and steel stocks, Hermann Krages, 53, has seen his investments multiply 25 times since 1948. But though he got rich, he made few friends: Krages often used his minority holdings to badger managements until they bought him out at prices above the market just to be rid of him. The manner of Krages’ fall last week told much about the immense power of banks in today’s West Germany.

Krages’ nemesis was Frankfurt’s Dresdner Bank, one of West Germany’s three biggest (the other two: the front-ranking Deutsche Bank and the Commerzbank, now third largest in Germany). Caught with heavy margin loans in the recent fall of the German stock market, Krages scrambled for fresh cash to protect at least part of his holdings, finally got it on harsh terms dictated by Dresdner. To fatten its own portfolio, the bank wanted Krages’ shares in a major chemical maker called Chemie-Verwaltungs, A.G., and in Germany’s biggest coal company, Gelsen-kirchener Bergwerks, A.G. With his back to the wall, Krages was compelled to sell the shares, worth $125 million two years ago, for $29 million last month, well below prevailing bear market prices.

The Kingmakers. Perhaps nowhere in the world do banks hold more sway over the business community. German banks are at once commercial lenders, stockbrokers and underwriters—or, as one top German banker explained, “a combination of Chase Manhattan, First Boston and Merrill Lynch.” Most German stockholders, untrained in the vagaries of “corporate democracy,” readily sign proxies for banks to vote their interests at annual meetings.

The bankers can thus hand-pick many a top corporate executive, as they did Fritz-Aurel Goergen of the Henschel locomotive works. The supervisory boards of German companies are so heavy with bankers that the government has limited each banker to 20 memberships. Special permission to have more, however, has been given to Hermann Abs, politically potent chief of the Deutsche Bank. His current total: 24 directorships.

And Kingbreakers. Controlling so many shares, banks exercise tremendous powers in Germany’s thinly held stock markets. As German stock markets turned down recently, Dresdner shrewdly sold off selected shares from its own vast holdings, which further depressed the market. The issues owned by Hermann Krages plunged, and he was obliged to make a deal. Unlike many small investors, Krages has not been ruined by his paper loss of close to $100 million. But the bank has eliminated him as a major force in the market for quite a time to come.