Dr. Theodor Weimer: Munich as a financial centre: status quo and future prospects

In Munich it is more readily apparent than anywhere else in the Federal Re­­public: The success of the Bavarian economy – as in all of Germany – is based on coexisten­­ce and cooperation be­­tween a strong, in­­no­­vative industrial sector and highly specialized service pro­­­­viders. While other Ger­­man cities and re­­gions are dominated by only one or two “key industries”, Munich’s eco­­no­­mic strength rests on a number of very different pillars. The state capital of Ba­­varia is an industrial and at the same time a service metropolis, with the fi­­nancial sector being one of the central ser­­­­vi­­ces trades in the city. Both the manufacturing industry and the financial sec­­tor in Munich boast world-re­­nowned companies. The financial centre of Mu­­nich is one of the cornerstones of the Ba­­va­­rian economy.
The Greater Munich Area is one of the major financial centres in Europe. It is characterized by a high degree of di­­ver­­si­­fi­­cation. For instance, Munich and the sur­­­­rounding region are Germany’s number one market for insurance companies, num­­ber two banking centre and leading pri­­vate equity, venture capital and leasing market. In addition, the city is an im­­por­­tant asset management centre. The Ba­­va­­ri­­an Stock Ex­­change has successfully po­­sitioned it­­self as a powerful partner for busines­­ses and places Munich among the most in­­no­­vative stock exchanges in Europe.

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A total of approximately 170 banking in­­­­stitutions have a presence in Munich, about 50 of them are headquartered here. These include HypoVereinsbank, the third largest bank in Germany, which belongs to one of the most important European banking groups, the UniCredit Group. Fol­­low­­ing the merger of HypoVereinsbank and UniCredit four years ago, the financial centre of Munich became home to a strong Eu­­ropean player, who concentrated a significant part of its business operatio­­ns and competencies – such as in­­vestment banking – in Munich.
However, it is not only banks that determine the character of the financial centre of Munich, it is to a significant degree characterized by insurance companies. Even at a global level, Munich is a leading centre for insurance services. About 70 insurance companies employing about 32,000 people are based in the state ca­­pital.
Especially in view of the financial market crisis and its implications, the existence of more than one pillar is an invaluable ad­­vantage for the financial cen­­tre and adds to the stability of Munich’s financial system. Because in Munich, as everywhere else in the world, banks were most severely hit by the fi­­nan­­cial market crisis.
In fact, this crisis will have a lasting impact on the general conditions under which banks and the whole financial industry operate. Due to their close links with the banking system, the other sectors of the economy will also be noticeably affected by these changes. Major developments are beginning to appear, which the financial centre of Munich will have to face.

For instance, stricter regulations will be imposed on the financial industry. This is the consequence of one of the central findings obtained during the crisis: the partial failure of the self-regulatory system in the financial markets. Initiated by the G20 countries, a new financial market architecture is underway: new struc­­tures in banking supervision, higher trans­­parency and reporting requirements and particularly stricter equity capital re­­quirements will change the financial system in the long term and will no doubt limit the freedom and scope of action of the financial industry.

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These changes are one of the reasons why we are currently experiencing a new type of tension: on the one hand, policy makers, but also clients, urge banks to fully maintain their loan commitment in times of cri­­sis. On the other hand, the new re­­gu­­la­­ti­­ons and higher equity capital re­­quire­­ments massively restrict the banks’ ability to extend loans. At the same time, due to the partly hamstrung capital markets, risk transfer through securitization con­­tinues to be limited, even though signi­­fi­­cant improvements have been observed over the past few months.
The financial centre of Munich is re­­quired to take action to stem this trend. To tackle these issues, “Mittelstandspakt Bayern”, a Bavarian government initiative for me­­dium-­­sized companies, was set up in the summer of 2009. It is a pact where po­­l­­icy, business associations and the bank­­ing sector closely collaborate to create a fa­­vourable environment for medium-sized businesses to operate successfully and se­­cure their jobs. In concrete terms, this means: taking coordinated action to strength­­en the essence of firms, opening up new perspectives for future-oriented business activities, and addressing the necessary structural change early on. In addition, in a joint effort with the par­­ticipation of Hypo­­Vereins­­bank, gui­­de­­lines were developed and implemented to make sure that sufficient loans are made available to Bavarian businesses.
These initiatives, too, are part of the set of actions which helps to win back the trust in the integrity of the financial sector, because the loss of confidence in the banking system, which hits the financial centre of Munich just as much as all fi­­na­­n­­­­cial centre­­s, is one of the most serious con­­sequence­s of the crisis. To be successful in the long term, the relationship of trust with clients and society at large must be restored completely. The stakeholders in the financial centre of Munich are already busy working on crea­­t­­ing the appropriate conditions. Business concepts are adjusted to meet sustainability principles, and many companies have radically changed their culture to­­wards long-term goals. The experience gained and lessons learned during the crisis are also reflected in new corporate rules.
This will make it possible to restore the partly damaged relationships with clients. Sustainability and a long-term orientation towards the future are the key words that are currently given priority in the financial centre of Munich and the joint con­­cern of all people involved. The financial centre has accepted the challenge. It will continue to be an innovative and efficient fi­­nancial centre, which offers convincing financing solutions for local companies.

Theodor-Weimer-grThe author has been working for Uni­­Credit Group since 2007, in 2009 he be­­came Spokesman of the Management Board of HypoVereinsbank and, in his function as Country Chairman Germany, a member of the Management Commit­tee of UniCredit Group. After studying in Tübingen and St. Gallen and receiving a doctorate from the University of Bonn, he worked for McKinsey, Bain & Com­pany and Goldman Sachs.