The European Business Review - July-August 2019

http://www.europeanbusinessreview.com 33

The crowdfunding industry in Germany is
doing what many European banks are afraid
to do — creating value by combining tech-
nology and banking. The authors explore the
rise of Germany’s crowdfunding industry and
how it has affected the way people obtain
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Banks has languished behind their American
counterparties ever since the industry was
shaken up following the Global Financial Crises.
Contrary to the advice from Winston Churchill,
“Never let a good crisis go to waste”, senior
management of large continental money banks
have done exactly that. They appear to have
missed the opportunity to adapt and reinvigorate
their business models according to technological
changes after the crisis. In an upcoming study by
Professor David Young and Dr Boris Liedtke,
both from INSEAD, the two argue that the new
direction, which European Banks took between
2006 and 2016 was not focused on value creation
but instead was driven towards risk reduction
and enhanced social accountability while largely
maintaining their business model and systems. In
fact many have struggled for decades to update the
very core IT system that drives their behemothian

operations. The share price, price-to-book valua-

tions and the lack of improvement in earnings

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market is a case in point.

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cial institution in the world by assets and among

the top ten by valuation, is down to a market capi-

talisation of less than USD19bn with an alarming

price to book ratio of below 25 cents in the dollar.

In terms of market value, the largest bank of the

largest European economy now ranks far behind

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(USD365bn) – and Chinese – ICBC (USD308bn) but

is also worth a fraction of once much smaller local

players such as Royal Bank of Canada (USD110bn),

Commonwealth Bank of Australia (USD92bn)

or OCBC in Singapore (USD36bn). The balance

sheet of the prime German lender remains full of

near-impossible to value tier 3 illiquid assets and

billions of partly failed IT project “investments”

which are slowly amortising over years. These are

leading to its abysmal price-to-book value. The

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lender, Commerzbank, which itself is a creation

of a merger with Dresdner Bank, does not show

a much brighter future. So the two do what prey

usually do in such situations: they huddle together

fearful about what the future might bring.

Fintech

Disruption of Financial

Services in Germany

BY PETER WALBURG AND BORIS LIEDTKE

In terms of

market value,

the largest bank

of the largest

European

economy now

ranks far behind

American and

Chinese financial

institutions.