Eamonn Fitzgerald's Rainy Day

When I started teaching English there in the early 1990s, it was called Bayerische Vereinsbank and the atmosphere in its headquarters in the centre of Munich was like that of a country club. One afternoon while making my way around the maze of offices near Kardinal Faulhaber Straße, which have since been replaced by an upmarket shopping mall, I opened a door and found a roomful of bankers dozing away. I had entered what was called the "Liegeraum" (the "reclining room"). Such was the genteel corporate culture of the time that employees were encouraged to take a rest after lunch.

All such charming remnants of 19th century privilege were swept away when the bank went on an expansion course that saw it merge with its main local rival, Bayerische Hypotheken-und Wechsel-Bank, in 1999 and change its name to HypoVereinsbank (HVB). It was a tainted merger, however, as it appeared that a healthy bank (Vereinsbank) knowingly joined with a sick one (HypoBank) to fend off a takeover by a rival, Deutsche Bank. How ill was HypoBank at the time of the merger? Well, back in 1990, convinced that German reunification would create an economic boom, most banks rushed to fund projects in the East Germany, but none was more aggressive than HypoBank. It bought heavily into the infrastructure and funded offices, roads, and even rail links. After the boom failed to materialize, HypoBank admitted its holdings were overvalued and the losses were enormous. And things have gone from bad to worse as falling stock markets, Germany's economic downturn and rocketing insolvencies have pushed HVB's loan loss charges to record levels.

That brings us to yesterday when the HVB Group, now Germany's second largest bank, said that it was considering a bond issue to strengthen its balance sheet. The market speculation is that HVB is poised to issue a €4 billion mandatory convertible bond. What? Why? Well, it's simply a backdoor into the equity markets. Analysts were not terribly surprised by the news, although €4 billion would be a huge amount for a bank that has seen its market capitalization fall to €4.5 billion. HVB is seeking to play down fears about its financial health, but a bank which suffered losses of €858 million last year and scrapped its dividend payout cannot inspire much confidence anymore.

Maybe they should have stayed in their "Liegeraum", those white-blue-blooded Bavarian bankers.

Diarist of the day: Drew Pearson, 28 February 1958

"Harry Cohn of Columbia Pictures died yesterday. I shall always remember him for having padi $750 for the title of 'Washington Merry-go-Round' [the title of one of Pearson's newspaper columns] in 1931 and made a million-dollar movie out of it. He used to laugh when he saw me in later years. My share was $375. Latterly he has been chiefly famous around Broadway for paying $25,000 to the Nego nightclub singer Davis [Sammy Davis, Jr] not to sleep with Kim Novak. Cohn claimed he discovered her first."