 Frankfurt is facing tough times |
Germany's leading banks, mired in their worst crisis since World War II, are to pool their loans, in an unusual move to improve their balance sheets. Up to 50bn euros (�35bn; $54bn) of loans are to be "securitised" - combined into a fund, which is then chopped into pieces and sold off to investors as bonds.
The deal, confirmed by the finance ministry and due to be elaborated on Wednesday, will be a step towards restoring faith in the German banking sector, which is has suffered especially acutely from the country's current slowdown.
The authorities stressed, however, that this was not the sort of humiliating bail-out that has been pushed through in troubled economies such as Japan.
The securitisation fund will only take investment-grade loans, and cannot be used as a dumping ground for bad debt.
Getting together
The joint venture, which will see at least five of the country's biggest banks in unprecedented co-operation, will get under way later this year.
It should come ahead of the planned exemption from tax in Germany of special purpose vehicles, the accounting vehicle used for securitisation deals.
Although the deal has already been welcomed by bank-watchers in Germany and elsewhere, there are warnings that it will not solve all the financial sector's problems.
There has been repeated talk of setting up a "bad bank", a state-backed institution which would take on the sector's bad debt and manage it in the most efficient way possible.
Top German banks have resisted this idea, however, arguing that it would diminish the prestige of the industry.
But some sort of solution is urgently required, since an increasing number of German firms are warning that bank financing is proving hard to secure in the present difficult climate.
Growing business
Securitisation has long been fashionable in the US for realising the value of awkward financial assets.
A fund of bundled-together credit-card payments, for example, can have a far greater creditworthiness than any individual loan.
This sort of fund, then, allows credit-card companies to sell on their debts at a far better price than they might otherwise achieve.
The technique has even been used by rock musicians such as David Bowie, effectively selling bonds backed by a fund of future earnings.
In Europe, where tax laws on this sort of investment have been less favourable, such deals have been slow to take off.
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