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Deutsche deal shows Oppenheim weakness

August 6, 2009

How are the mighty fallen! Sal Oppenheim may be have been banker to Germany’s elite for 220 years. However, a few rash investments over the past couple of them appear to have forced it into the hands of Deutsche Bank, the 800 pound gorilla of German banking. However, Oppenheim’s clients may be less than delighted at the change of ownership.

The two admitted to being in talks enabling Deutsche to acquire a minority stake on Wednesday, though sources suggest that this could lead to a majority holding.

Oppenheim likes to boast that it is Europe’s biggest 100 percent independent private bank. It rejected the idea that it might need a boost in capital from the state just a few weeks ago as its financial woes mounted. The private bank — headquartered in Luxembourg since 2007 — made its first loss since the World War Two (of 117 million euros) in 2008 on the back of a few spectacularly badly chosen deals. It invested in IKB, the subprime casualty, Arcandor, Germany’s largest post-war insolvency, and Continental,  the tyremaker which was taken over by Schaeffler the ball-bearings maker in 2008, in an expensive and ill-timed deal.

The bank’s owners — some 40 or so shareholders from the Ullmann, Oppenheim and Pferdemenges families — had to plug in 200 million euros last December to shore up its capital base. Partners at the private bank include aristocrats like Baron Christopher von Oppenheim and Count Matthias von Krockow.

However, with the further troubles among its industrial clientele this year, it looks like a further capital injection would have proven necessary in the absence of a deal.

Given the collapse of other, bigger, banks, its customers may well have started to get twitchy about Oppenheim’s solidity. The deal would give Deutsche an “in” into Germany’s wealthy aristocratic families and its industrious Mittelstand that it has so far lacked. Despite its small size, Oppenheim has been an adviser to some of the biggest players in Deutschland AG — it had a hand in the Daimler’s 1998 takeover of Chrysler and in Allianz’s similarly poor acquisition of Dresdner in 2001.

However, Oppenheim may simply be swapping one set of problems for another. True, a small independent bank lacks the deep pockets of a huge, listed one. However, being the client of a huge investment banking group is not much happier, as UBS customers found out to their cost. Deutsche has been trying to build up its private bank for years. Presumably Oppenheim’s clients had good reasons for not making the switch.

Moreover, the history of takeovers of small partnerships by huge bureaucracies is not always a happy one. Deutsche will have to perform a delicate balancing act if it is to persuade Oppenheim’s blue-blooded customers their money is safe while simultaneously trying to sell them Deutsche’s products.

(Additional reporting by Paul Taylor and Alex Smith)

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  • About Margaret

    "Margaret Doyle is a Reuters Breakingviews columnist, based in London. She writes about investment banking. She has been a journalist for over 14 years. She has written for The Daily Telegraph and The Economist and presented various radio programmes for the BBC. She began her career as a consultant at McKinsey & Co. She has an economics degree from Trinity College, Dublin and an MBA from Harvard Business School, which she attended as a Fulbright scholar. She is a Conservative Member of Westminster City Council."
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