Bayerische Landesbank: Germany’s High Flier?

Bayerische Landesbank, one of the largest state-owned banks in Germany, has been running an amazing ad in the U.S. business press. It features a winged statue and a bold caption: High Flier.

In the world of high finance, a “high flier” is someone who soars above the rest of the market. Yet, it also carries with it the connotation of risk — and even danger. It’s a touchy phrase — and one that can be easily misunderstood. So the choice of statue made by BayernLB to accompany the ad comes as a bit of a surprise.

If you have been to Munich, you no doubt know the statue as the Friedensengel — the Angel of Peace. Based on the Greek statue of Nike, the Goddess of Victory, the Angel commemorates the Versailles Peace Treaty of 1870, which ended the Franco-Prussian War — and legitimized the German annexation of Alsace and Lorraine.

But when allied with the notion of a “high flier,” readers may be forgiven for thinking of a different mythological figure — namely, Icarus, the son of inventor Daedalus. After all, Icarus was a “high flier” who flew too close to the sun — and fell to his death when his wax wings melted.

In the case of BayernLB, the sun that melts its wings may be risky loans. BayernLB, you see, is owned by the State of Bavaria — thus making it that government’s “pocket bank.” And like other pocket banks, BayernLB has been called upon to do favors for its owners — and the men who run the state — whether or not it makes business sense.

In the case of Bavaria, one of those men is Edmund Stoiber, Bavaria’s powerful premier and a strong candidate for Chancellor in Germany’s fall elections.

BayernLB has seen its asset quality deteriorate over the past few years, according to an analysis by rating agency Standard and Poor’s. The bank has also suffered from exposure to emerging economies and insolvent mid-sized corporations in Bavaria.

More embarrassing still is BayernLB’s involvement with entrepreneur Leo Kirch and his troubled business empire. Mr. Kirch has powerful friends, including Mr. Stoiber. Last year, BayernLB lent Mr. Kirch the money to consolidate his control over Formula 1 car racing. All in all, Mr. Kirch’s lines of credit from BayernLB run into billions.

In light of such dealings, the text of the BayernLB ad takes on a new meaning: “If you are looking to secure your future, talk to us,” reads the text. “With our support, your vision will grow wings. We can open the right doors for your plans.”

BayernLB is backed by a guarantee from the State of Bavaria. Such public backing means that such poor-quality loans, which would have sunk a private bank, have not had much impact on its credit quality. BayernLB is still rated AAA by S&P.

But this particular Icarus may yet tumble back to earth. The European Union has decreed that the state guarantees that protect BayernLB will be phased out by 2015. Some will go even sooner. If BayernLB continues to extend questionable loans to its political patrons, it is its own future that it should start worrying about.

April 1, 2002