The venerable Frankfurt-based Metzler Bank is one of Germany's oldest banks – and part of a dying breed of privately-owned banks in Europe's largest economy. It emerged from the textile trade and has been in family ownership for 337 years. Over the years, the institution’s development has always been tied to the one of family’s key principles: maintain independence.
Friedrich von Metzler, 71, is one of the few German bankers to emerge through the recent global financial crisis with his public trust intact. His advice has been sought by politicians including Germany’s chancellor, Angela Merkel. Mr. von Metzler joined the management of B. Metzler seel. Sohn & Co. in 1971. His guiding principle: Exercise common sense. He is one of the few remaining old-school bankers in Germany, and he thinks in terms of generations and not in short-term optimized transactions.
Emmerich Müller, who was born in 1956, has been working for the bank since 2000. In early 2005, he was named a general partners and effectively become Metzler's top banker. Mr. Müller is in charge of the bank’s operating business and has managed to come through the financial crisis with his reputation unscathed.
Interviews with the leaders of Metzler Bank have become something of a tradition at Handelsblatt over the past decade. Their views and stories offer a window into the German banking scene, from two men widely considered to be the conscience of the industry.
Handelsblatt: Mr. Müller, the name Metzler stands for the last purely private bank in Germany. Does it fill you with sadness to see this breed threatened with extinction?
Mr. Müller: There are still a number of very agile private banks. Warburg, Berenberg and the Castell’sche Bank, come to mind, for example. But there aren’t many more, you’re right about that. However, this consolidation process is affecting all sectors of the financial industry.
But who would found a private bank today after the industry suffered an unparalleled lost of confidence. Will the reputation ever be restored?
Mr. von Metzler: All of the banks are working on that. We are moving in the right direction. Two-thirds of the path is behind us.
These efforts are barely recognized in politics. Politicians love to criticize the banks.
Mr. Müller: That has changed now. Banks are no longer being pilloried. It has been recognized today that the credit standing of a bank and a respective state are closely linked. And the political will to regulate the financial institutions should also have reached its high point.
The Metzler Bank has been in existence for almost 350 years. Were banks attacked on such a massive scale in earlier times?
Mr. von Metzler: In the 1920s and ’30s, almost every bank had to be supported. At the time there was a call for nationalization, and that comes up time and again. Don’t forget, one of the causes for the murders of the bank managers Jürgen Ponto and Alfred Herrhausen was a partially-radicalized public debate on the power of the banks. That was only 25 years ago.
Nationalization certainly doesn’t play a role anymore today.
Mr. von Metzler: But historically seen, the issue was always there. It was, for example, carried out in France in the 1980s. It was a realistic fear of bankers following the Second World War. At the time, the major banks wished to have many private institutions to make nationalization more complicated, if not even impossible.
Our goal isn’t to maximize the bank’s profits in the short term....We are only active in areas where magnitude doesn’t play a decisive role. Friedrich von Metzler, Metzler Bank
So major banks and privately-owned banks closed ranks?
Mr. von Metzler: Yes, and later with the failure of Herstatt Bank about 40 years ago, the major banks even called up the smaller institutions and asked whether they had liquidity problems and offered to help out.
Along with the collapse of Lehman Brothers and the financial crisis that followed, you have survived many other turbulences in the past century. What is your formula for success?
Mr. von Metzler: We think in the long term. Our goal isn’t to maximize the bank’s profits in the short term. We don’t deal in appreciable loan and no savings-deposit businesses, since we are only active in areas where magnitude doesn’t play a decisive role. Asset management, corporate finance, as well as consulting on securities and currencies, are what ideally suit us. That is our formula for success.
And you want to maintain that course?
Mr. von Metzler: Basically, yes. We are permanently investing in our IT infrastructure and constantly improving our business procedures.
Mr. Müller: Our business probably wasn’t much different from today at the close of the 19th century.
Mr. von Metzler, you are the 11th generation to run the bank. What does tradition mean to you?
Mr. von Metzler: I already learned as a young man that the banking house had withstood many storms. To us, tradition means to think in the long-term and at the same time adapt to a world that is constantly changing. One of our roots was the trading business that was always associated with financial business. On the other hand, others made a huge business out of loans, the Fuggers and the Welsers. In the end, it was their downfall.
You are not only a banker, you are also the head of a family. Does that change your attitude toward business?
Mr. von Metzler: I often say to my children, we have never had an existential row in the family. That makes a lasting impression. Moreover, it is deeply rooted in us that clients and employees always come first.
Can you, in good conscience, recommend that the next generation follow in your footsteps? The banking business certainly isn’t getting any easier.
Mr. von Metzler: Most certainly. I am firmly convinced that the bank has a good future. Leonhard, my cousin’s son, is managing director in the field of asset management, and my two children are just now gaining their first experience in the bank. My wife and I always tell the children that they have to be happy in their profession. You can’t go into banking if you are not really interested in it.
How do you get children interested? What kind of skills do you need to do that?
Mr. von Metzler: By talking like you do around a campfire, about what motivates you, or while having lunch, on the weekend. If you really like talking about what you do, others become interested also.
What was it like working together with your father when you first joined the bank as a young man?
Mr. von Metzler: Really good. If we had a difference of opinion, I would say to my father, you’re the older one, you’re the smarter one, you have to give in. Naturally, he didn’t always do that (laughs). No, seriously, I always say there are three important things in life: your spouse, your children, and your calling and your profession. My children should at least know the bank well enough that they can help determine the bank’s strategy in the shareholders’ committee, in which family members do not have a majority.
And that’s become part of the way your children think?
Mr. von Metzler: But of course. And now we are waiting to see if they want to stay in the bank. I have the impression that they feel right at home here.
How have you been able to avoid disputes so far?
Mr. von Metzler: First of all, the Metzlers have no patriarch who can’t let go. Second, besides me, there are five other general partners running the bank. Third, we have always paid attention to character, not just knowledge.
Which characteristics are most important?
Mr. von Metzler: Long-term thinking, the ability to work in a team and to take joy in the success of colleagues.
The U.S. banks are the winners of the crisis...The financial institutions on the other side of the Atlantic are in better condition today than the European banks. That is unfortunate. Emmerich Müller, Bankhaus Metzler
Let’s get back to the industry. We only have one financial institution left, Deutsche Bank, that is active on a large scale internationally. Is that enough?
Mr. Müller: At the end of the 19th century, German industry wanted to be independent from the British Empire banks and, together with some private banks, founded the major banks of the time. Back then, it was a matter financing infrastructure projects and assisting international expansion. That remains a focus, even today.
Are the “Empire” banks today the Wall Street banks?
Mr. Müller: Yes, the U.S. banks are the winners of the crisis. They were quickly recapitalized, and the loud discussions about “too big to fail” remained without consequence in the U.S. The financial institutions on the other side of the Atlantic are in better condition today than the European banks. That is unfortunate.
The banks regularly complain about tough regulations from governments and supervisors since the crisis. What constricts you the most?
Mr. Müller: The concept of a private bank, with its distinctive features, is not taken into account in European regulating. Moreover, many provisions were thrown together in haste.
And what would good regulating look like?
Mr. Müller: We consider the higher capital ratios to be absolutely correct. If you want to reduce risks, then that’s the appropriate approach. And it would be high time to take a closer look at the government-related risks sitting in the banks' balance sheets.
Which are also the result of the loose money policy.
Mr. Müller: Yes, we’ll be dealing with it also in 2016. The basic problem is that debt had built up in the world that was significantly above economic performance. That can’t go well for long. By 2007-2008, overall debt, measured in terms of the gross domestic product in the industrial nations, had rapidly increased. After that, the same process took place in the emerging economies. The low interest rates seduced people to go into debt. Ultimately, cheap money always leads to misallocations. Investments followed that otherwise never would have been made.
Does that also apply to real estate?
Mr. Müller: The real estate prices in the Scandinavian markets shot up unbelievably fast. A doubling in price in three years is not healthy. Unfortunately, we recognize many bubbles only when they burst.
An end to the European Central Bank’s low interest phase is in sight, isn’t it?
Mr. Müller: We don’t see an end. I believe at some point the negative effects for the population will become so clearly felt – above all in northern and central Europe – that the low interest rates will no longer be politically sustainable.
When will it come to an end?
Mr. Müller: I’m afraid we will have to live with low interest rates for a very long time to come. We have today a cartel of debtors. They have no interest in higher interest rates. At the moment, most of the fiscal policymakers are still happy about the ECB, because despite high levels of debt, the interest burden is low.
What alternative remains? Stocks?
Mr. von Metzler: By all means. Many Germans are threatened with old-age poverty. The broad mass of the population must invest in stocks.
But the valuations are also already high there.
Mr. Müller: First of all, the environment for equities continues to be positive – we expect a stable growth of the economy by around 3 percent. On the whole, European stocks are still sensibly valuated, given the earning prospects. The clear message is there is still potential for a double-digit percentage share price upward movement.
Robert Landgraf is the deputy head of Handelsblatt's finance section and is based in Frankfurt. Peter Köhler is a Handelsblatt editor in Frankfurt, reporting on banks, private equity firms, venture capital and corporate funding. To contact the authors: [email protected]; [email protected]