Credit crunch

German industrial conglomerate Siemens has learned a lesson from the credit crisis. The company is opening its own bank to spur on business by helping customers secure financing.

Siemens Bank will be based in Munich and will function as an independent company, despite being wholly owned by its parent company. With financial regulators having given Siemens the go-ahead, the bank may be opened as soon as the end of the year.

Siemens Bank will initially only offer services to customers in Germany, and the company is not entering into retail banking. Energy, healthcare and communications are some of the industries in which the company plans to offer more flexible financing and optimized risk management.

Roland Chalons-Browne, head of the already-established Siemens Financial Services, will lead the new bank.

"Above all, future customers should include public sector companies and project companies," he told the financial newspaper Boersen-Zeitung.

Financing is vital for industry customers, many of whom need extremely expensive equipment to operate their businesses. But it's also vital for Siemens, which often can only sell its products if customers are able to secure a loan.

Hans-Peter Burghof, a professor of banking at the University of Stuttgart-Hohenheim, says that has been a real problem during the credit crisis.

"Especially medium-sized companies have been having problems getting access to loans even though they may have a good business concept," he told Deutsche Welle. "So even though they may have wanted and needed to buy Siemens products, they haven't been able to do that without a credit."

Lesson from the car industry

Financing expensive products is a business model which has long been pursued by car companies. Burghof said it's a case in which a "product consists of the product itself and the financing component."

"Sometimes its better to offer both components, product and financing, from within the company," he said. Since Siemens already offers financial services, it won't have to make many internal changes to open a bank as well.

But Siemens' decision to not enter retail banking isn't necessarily the status quo. It's rival, General Electric, has a bank called GE Money, which does offer retail banking products.

One reason for Siemens' decision could be Germany's crowded retail banking market. Another could be that it learned from watching GE's experience in banking. That company became a victim of the financial crisis partly because of its forays into lending.

Siemens has "no competitive advantage in retail banking," Burghof said, adding that starting a bank does expose the company to new risks. Venturing away from lending money in their core business is partly what got many companies involved in the credit mayhem.

"You might have people play on markets you don't understand," Burghof said. "But Siemens already has (a financial services department), and it has not gotten intro trouble in the financial crisis. So chances are they will manage to stay on track."

Author: Andrea Roensberg
Editor: Gerhard Schneibel