Quick Money—
Run on the Banks

Covid-19 set off a domi­no effect as one nation­al econ­o­my after the other began enter­ing a cri­sis mode. Almost every day we see pub­lic pol­i­cy, busi­ness, and finan­cial experts present new facts and fig­ures about the econ­o­my. They fre­quent­ly draw com­par­isons to the glob­al reces­sion sparked by the col­lapse of the Lehman Broth­ers invest­ment bank in 2008. At that time it was the inter­na­tion­al bank­ing sec­tor that sent shock waves rip­pling through the real econ­o­my. Now it is the other way around. With busi­ness­es closed, con­tain­er ports desert­ed, trade fairs can­celled, air traf­fic at almost a stand­still, and near­ly a bil­lion peo­ple under lock­down or other con­tact restric­tions, exports have plum­met­ed and glob­al con­sump­tion stands in shock. Finan­cial mar­kets are expe­ri­enc­ing enor­mous tur­bu­lence and the price of oil is in free fall. Yet anoth­er dif­fer­ence defies com­par­i­son with 2008: the glob­al econ­o­my will fall twice as far as it did then. The Inter­na­tion­al Mon­e­tary Fund (IMF) antic­i­pates the most severe glob­al reces­sion in almost a century.

When many com­pa­nies began feel­ing the effects of the pan­dem­ic in March 2020 in the form of falling demand and short­ages in sup­ply, the banks saw a run on their ser­vices. “The need for liq­uid­i­ty was rel­a­tive­ly sta­ble over recent years, but finan­cial insti­tu­tions are now hav­ing to meet a steep and sud­den rise in demand,” says Dr. Stephen Hell­ham­mer, a part­ner at Porsche Con­sult­ing. The banks are scram­bling to resus­ci­tate the econ­o­my with the help of loans—no easy task given the dynam­ics of the pan­dem­ic. “On the one hand, we obvi­ous­ly have to min­i­mize risk for our­selves, yet at the same time we want to give our clients the great­est pos­si­ble sup­port,” says Stephan Ortolf, who heads the cor­po­rate cus­tomer divi­sion of DZ Bank in Frank­furt am Main. One thing is clear: not every com­pa­ny will sur­vive this cri­sis. “A cru­cial fac­tor is whether it was already hav­ing trou­ble before the pan­dem­ic, and also whether its busi­ness model will be viable in the future,” explains Ortolf. He is very well informed about the cur­rent sit­u­a­tion of many busi­ness own­ers and man­ag­ing direc­tors. “Most of our clients are sta­ble, and are also able to tight­en their belts for a pro­tract­ed peri­od of time. But they are con­cerned. No one knows, of course, how long this sit­u­a­tion will go on.”

Since March, near­ly all of DZ Bank’s 250 cor­po­rate account man­agers have been advis­ing their clients—medium to large-sized com­pa­nies and multi­na­tion­al corporations—on all finan­cial mat­ters from offices set up at their homes. “Our account man­agers and loan ana­lysts are work­ing over­time right now,” says Ortolf. With­in just a few weeks, the bank had received near­ly 40,000 queries by phone and e‑mail. “By early May 2020 the virus had trig­gered an increased need for liq­uid­i­ty of 4.5 bil­lion euros,” he reports. Gov­ern­ment assis­tance pro­grams are expect­ed to cover three bil­lion euros. DZ Bank is work­ing to pro­vide 1.5 bil­lion by means of new loans, syn­di­cat­ed loans, and extend­ed lines of cred­it. “But this fig­ure could eas­i­ly end up being con­sid­er­ably high­er,” Ortolf observes.

“DZ Bank was well pre­pared for the onslaught,” says Porsche con­sul­tant Hell­ham­mer, who has been advis­ing the bank for years now. “Meet­ing these addi­tion­al require­ments prompt­ly is an enor­mous task that demands a lot from the employees—all the more so because they were mov­ing their work sta­tions to their homes at the same time. That is only pos­si­ble with dig­i­tal tech­nol­o­gy plus flex­i­bil­i­ty and moti­va­tion on everyone’s part.” Ortolf explains that in addi­tion to chan­nel­ing gov­ern­ment loans from KfW Bank, DZ Bank pro­vides spe­cial finan­cial prod­ucts such as fac­tor­ing and for­feit­ing ser­vices in con­nec­tion with assis­tance pro­grams as well as promis­so­ry notes and espe­cial­ly loans. Green bonds also con­tin­ue to be pop­u­lar. “Medi­um-sized com­pa­nies, which here in Ger­many are fund­ed pri­mar­i­ly by their own equi­ty or by [bank] loans, have a lot of needs right now,” he says. “Over time, the drop in sales and the risk of pay­ment defaults will lead to a short­age of funds. By con­trast, large cor­po­ra­tions are more diver­si­fied and have bet­ter access to cap­i­tal mar­kets. They’re also ben­e­fit­ing from the expe­ri­ence their Asian loca­tions have gained with the effects of Covid-19.”

Ortolf phones or holds video con­fer­ences with his clients on a daily basis. Speed is of the essence. “We seek the best pos­si­ble solu­tion for each and every cus­tomer, and are will­ing to take risks in the process—if they are care­ful­ly con­sid­ered. After all, we can only over­come this cri­sis togeth­er,” he says. DZ Bank and other finan­cial insti­tu­tions are also ben­e­fit­ing from a tem­po­rary loos­en­ing of cer­tain equi­ty and loan-relat­ed require­ments by the Ger­man finan­cial reg­u­la­to­ry author­i­ty BaFin and the Euro­pean Cen­tral Bank. Experts esti­mate that has gen­er­at­ed an addi­tion­al cred­it capac­i­ty of up to nine tril­lion euros.

Not every loan appli­ca­tion is suc­cess­ful. Some com­pa­nies fall through the cracks. Eval­u­a­tions con­sid­er a num­ber of fac­tors such as cred­it his­to­ries, cap­i­tal resources, loan amounts, rat­ings, and prospects for the respec­tive sec­tors. “Our cred­it poli­cies have strong safe­guards, of course,” says Ortolf. “But the cur­rent adjust­ments mean that we actu­al­ly have more lee­way right now in our deci­sions. A com­pa­ny that was in good shape before the cri­sis but is now los­ing rev­enue or defer­ring pay­ments is not auto­mat­i­cal­ly given a red light. Instead what we try to do is assess on an indi­vid­ual basis what the ‘post-coro­na’ out­look will be—to the extent that’s possible.”

The extent of the pandemic’s con­se­quences for the glob­al econ­o­my will depend above all on the dura­tion of the virus-con­tain­ment mea­sures and the step-by-step rein­tro­duc­tion of nor­mal social and eco­nom­ic rou­tines. But Ortolf is opti­mistic. “I’m con­vinced that the inno­v­a­tive power of Ger­man com­pa­nies will out­last the cri­sis. More­over, we’re going through a high-octane ver­sion of the dig­i­tal trans­for­ma­tion right now. This boost will gen­er­ate new ideas and busi­ness mod­els for us all.”