During the crisis last year, the German federal government introduced a series of measures to stimulate the weakening economy. This economic stimulus package became known as “Konjunkturpaket II”. The idea was to help companies hit by the crisis with fresh money out of a substantial fund to bridge the gap until their situation had improved.
In the end, the money from “Konjunkturpaket II” actually has quite high interest rates. Banks are supposed to give credit to companies in need support from this pot of money; they then, at their own discretion, add what has often proven to be a high margin for the risk. Additionally, the tax payer steps in as a guarantee.
It sounds like a pretty good deal for the banks, but apparently this isn’t quite good enough. Many banks are trying to persuade companies that haven’t been hit by the credit crunch to use “Konjunkturpaket II”. They lend expensive money, guaranteed by the tax payer, and try to give it to sound companies at very unfavorable conditions. High margin, zero risk! The whole issue has had an interesting impact on the relationship between banks and their corporate clients.
I was witness to one such persuasion attempt: A local bank invited me and managers from several other companies to a business breakfast. None of the people attending had considered themselves a candidate for “Konjunkturpaket II”. The bankers tried to talk the guests into using “Konjunkturpaket II” although they didn’t really need it and most of them had never even thought they were eligible. The creativity of these people still amazes me; they suggested that companies put the money they use for operations aside in a separate bank account and save it for investments and then finance operations out of the governmental fund.
They even actually tried to intimidate people; I remember one of the guests saying that he could actually see a light at the end of the tunnel with regard to the economic situation “Are you sure it’s not an oncoming train?” was the reply he received.
Konjunkturpaket II Missed Its Goal
All this has led me to the conclusion that the “Konjunkturpaket II” missed its goal. My advice to companies is; be careful before you let your bank talk you into something you don’t need or want. Banks aren’t trying to give the subsidy to the companies who are in trouble but instead squeeze money out of healthy companies at a low risk for themselves.
Luckily, we never had to take advantage of this program; in 2009 ECT did exceptionally well.
What have you experienced in the wake of the crisis and how has it affected your relationship with banks? I’m curious to read your comments.