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.
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.
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.
The 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.
