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Need help with my writing homework on Are the German Banks Riskier than the European Competitors. Write a 2250 word paper answering; The risk and lowered safety of German banking business is compared by tracing the performance of certain noted German banks like IKB Deutsche Industrie bank, Commerzbank, Deutsche bank credits and Hypo real credit Bank, taking parameters like Equity/Total Assets, Return on Average Assets (ROAA), Net Loans to total Assets, Liquid assets/total assets, etc. These figures are compared with leading European banks like Societe Generale Bank AXA Bank Europe, Compass SPA, GE Money Bank.
The general consensus based on the comparative paper using these parameters shows that German banks do have lower risk capacity bearing abilities, especially when we consider the case of banks like IKB Deutsche Industrie bank (which had to be bailed out) and several other major banks that had to go under the hammer or have significantly reduced their business, or have become inactive. In the end, certain reconstruction strategies have been provided that could provide a sense of direction and thrust to German banks for the future.
“Germanys “three-pillar” banking structure separates ownership of state banks, cooperatives, and listed lenders, forcing big players such as Deutsche Bank (DBKGn.DE) to look abroad or to focus on investment banking or other specialized areas for growth.” (Gould, 2007).
Although market conditions are improving it is also predicted that Commerzbank would end 2009 with a net loss. As one of the premier banks in Germany, having also acquired Dresdner Bank, it is expected to do well. But the parameters speak differently. There is apparently a heavy loan burden for this bank, with debt-equity at around 98 when ideally it should be around 3-4. Thus, this bank does carry a high degree of risk. .
One of the main aspects of the risk of a bank is the Debt equity asset ratio, and in this count, Commerzbank is indeed much riskier than other banks. Coming to return on average assets, both are equal at 0.75, while net loan on total assets is only around 9% for Commerzbank, while for other banks it is – Societe General bank (32%), AXA Bank, Europe (55%), Compass SPA, (83%) and GE Capital ( 97%).
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