Bayerische Hypotheken-und Wechsel-Bank Ag
Bayerische Hypotheken-und Wechsel-Bank Ag
Assets: DM135.2 billion (US$76.23 billion)
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Bayerische Hypotheken- und Wechsel-Bank, better known as Hypo-Bank, was founded in 1835 by decree of King Ludwig I of Bavaria, who believed that his nation needed a new bank to increase the availability of Credit and to stimulate the economy. His economic advisers decided that the new bank should be formed as a private company and accordingly, Hypo-Bank’s first share offering was made in December, 1834. Hypo-Bank opened in October, 1835 in the Preysing Palace in Munich, and two years later, it opened its first branch office, in the Bavarian city of Augsburg.
At its inception, Hypo-Bank’s activities fell into three principal categories: mortgage banking, commercial banking, and insurance. Deposits were not an important part of its business; they were, in fact, regarded as a potential capital drain. The bank’s founding charter prohibited all forms of speculation, merchant banking, or investing in foreign securities. As the national bank of Bavaria, it had the exclusive privilege of issuing paper currency, but abandoned this practice in 1875 when the new Imperial Bank Law placed severe restrictions on issuing banks. The mortgage business was the bank’s most popular activity from the outset. The introduction of mortgage bonds in 1864 added another popular and profitable dimension to its operations.
As an important part of the Bavarian economy, Hypo-Bank was vulnerable to the force of larger events. The political upheavals of 1848-1849 threatened its securities business and prompted the bank to stop paying interest on its few deposits. However, it prospered as a result of the Franco-Prussian War of 1870-1871. It placed three million Gulden worth of war bonds at the outbreak of hostilities to support the imperial government’s financial needs, and its commercial operations prospered during the economic boom that followed the German victory.
Hypo-Bank entered underwriting and securities trading in 1879 when it syndicated a Bavarian railroad bond worth 60 million Reichsmarks. It also began underwriting and dealing in foreign securities, although its 1879 annual report sought to reassure shareholders by emphasizing that the bank would only touch blue-chip issues. At first, it marketed only Austro-Hungarian, Russian, Romanian, and Bulgarian issues, but in 1889 it began marketing Asian, American, and Latin American securities in small quantities as well.
These latter developments came at a time when large German commercial banks were rapidly expanding their international operations. While Hypo-Bank was already a leading mortgage bank, its commercial banking deartment remained small compared to the Berlin-based Grossbanken. Nonetheless, it joined the big banks in founding the Deutsch-Asiatische Bank in Shanghai in 1889. It was also part of the Asiatische Konsortium, a famous group of German banks that cooperated with each other in loaning money to Asian nations.
Hypo-Bank began to outgrow its facilities in the Preysing Palace 50 years after its founding. During the 1880s the bank began purchasing houses around Munich and converting them into headquarters for its various divisions. A project converting its property on Theatinerstrasse into a new headquarters for the entire bank was proposed in 1893 and finished in 1898; this building was destroyed in World War II but Hypo-Bank’s headquarters were rebuilt on the same site.
Hypo-Bank became Germany’s leading mortgage banker when its volume of mortgage loans topped one billion Reichsmarks in 1908 and its total of mortgage bonds reached that level in 1909. But new imperial laws passed in 1906 regulating the insurance industry forced Hypo-Bank to spin off its insurance operations. The new insurance bank, which was named the Bayerische Versicherungsbank, nonetheless remained a wholly-owned subsidiary of Hypo-Bank and inherited the Preysing Palace offices.
Despite its new stature, Hypo-Bank remained a regional bank into the 20th century, while the Grossbanken grew ever larger and more powerful. As a result of this increasing centralization in the German banking industry, many smaller institutions were forced into alliances with the largest banks, surrendering their independence in exchange for the security that went with size. Hypo-Bank allied itself with both Dresdner Bank and Discontogesellschaft, but broke away in 1921 by entering a “community of interest” agreement with Barmer Bankverein and Allgemeine Deutsche Creditanstalt of Leipzig. Under the terms of the agreement, which was typical of provincial banks in the 1920s, the three institutions exchanged representatives from their boards of directors and agreed to coordinate their operations.
Of the years 1914-1948, Hypo-Bank’s official history says, “Business was at best difficult.... Success was measured simply in the ability to survive and assure long-term viablity.” After the outbreak of World War I, the bank’s mortgage business benefited from money that flowed into agriculture from military purchases, but it suffered as the war hastened a crack in the urban real estate market. The bank continued to suffer as building activity, and with it the demand for mortgages, slackened during the war. Governmental decree also closed the stock market at the beginning of hostilities, limiting activity in the commercial sector. But the war did not stop Hypo-Bank’s expansion; it purchased the Munich bank Fränkel & Selz in 1915, and in 1916 it bought the 50% of Nuremberg’s Bayerische Disconto- und Wechsel-Bank it did not already own. It also expanded its branch network throughout Bavaria.
Hypo-Bank floundered along with the rest of the nation in the economic crises of the 1920s. Radical currency devaluation and skyrocketing inflation in 1922 and 1923 forced the bank to virtually shut down its mortgage business, as loans made under more favorable economic conditions were paid back in increasingly worthless paper currency. The Weimar government undertook currency reform in 1923, and the next year Hypo-Bank began to rebuild its mortgage business from scratch. Bank employees had to convert 73,000 old mortgages and 1.2 million mortgage bonds into the new currency, and the bank introduced gold-backed mortgages and bonds. Also in 1923, the bank suddenly sold all of its shares in its insurance subsidiary to the insurance concerns Münchner Rückversicherungsgesellschaft and Allianz Versicherung.
The economic crisis of 1928-1929 that presaged the Great Depression in Germany hurt the bank’s commercial department as rising deposits and declining demand for loans coupled to strain its resources. Economic conditions worsened in 1930 and all forms of commercial business declined significantly. In 1931, public panic reached its peak with a run on the nation’s financial institutions, culminating in the closing of all banks and stock exchanges on July 14. As a result of the crisis, the bank was forced to reduce its annual dividends by 50% in 1933 and 1934. Nevertheless, its fortunes began to improve slightly in 1934. Although demand for Crédit was low, government rearmament and war financing stimulated the economy.
Hypo-Bank’s official history is largely mute about the war years, saying only that the bank’s mortgage business “continued to develop satisfactorily” until the economy collapsed in 1944, while deposits increased and commercial lending declined. The Allied occupation authorities investigating the German banking industry after the war turned up evidence of possible war crimes principally among the Grossbanken\ smaller institutions like Hypo-Bank were seldom, if ever, mentioned in American newspaper accounts of the investigation. The years immediately following the war also proved painful for Hypo-Bank, as it had to write off mortgages on German property destroyed by the fighting, as well as those in Alsace-Lorraine and Soviet-occupied eastern Germany.
All of that began to change, however, on June 20, 1948, when the West German government enacted radical currency reform and began to rebuild its shattered economy. Aided by the Marshall Plan, economic conditions in the Bundesrepublik gradually approached a state of normalcy during the early years of the Cold War, and Hypo-Bank, riding the tide of increasing prosperity, could report in 1953 that its assets had reached DM1 billion.
The 1950s for Hypo-Bank were marked by expansion and fundamental strengthening of its financial position. Its capital stock increased from DM27 million in 1948 to DM100 million in 1960, and its reserves went from nothing to DM155 million in the same period. The bank’s mortgage sector, its traditional mainstay, remained strong, but was surpassed in business volume by its general banking division. Hypo-Bank’s work force more than doubled, from 2,603 employees in 1948 to nearly 5,600 ten years later. It also began expanding beyond its geographic base in Bavaria, making business contacts in other German states as well as abroad. Nonetheless, Euromoney characterized Hypo-Bank’s philosophy during these years as adhering to the old Bavarian proverb: ”Bleib im Land und nähre dich redlich” —stay at home and live off the fat of the land.
Hypo-Bank continued to prosper and expand through the 1960s. In 1967, Barroris described it as one of three West German regional banks with more than $1 billion worth of assets, along with Bank für Gemeinwirtschaft and long-time Bavarian rival Bayerische Vereinsbank. In 1969 it began to negotiate a merger with Bayerische Vereinsbank that would have produced an institution large enough to rival the nation’s Big Three commercial banks (Deutsche Bank, Dresdner Bank, and Commerzbank), but it broke off talks in 1971 when the Bavarian state government insisted that Bayerische Staatsbank be included. Also in 1969, it officially joined the trend among financial institutions worldwide by declaring that it would expand and diversify in order to keep up with its major competitors. Hypo-Bank opened 100 new branches between 1969 and 1975, including 37 outside Bavaria. It also internationalized its securities operations, entered the currency trading business, and loaned more money overseas. In 1972, it joined with Banque de Bruxelles, Algemene Bank Nederland, and Dresdner Bank to form ABD Securities Corporation in New York, offering securities and investment-banking services to European investors interested in the United States.
This penchant for limiting risks through joint ventures also marked two of Hypo-Bank’s other major enterprises during the 1970s. In 1972, it joined ABECOR (Associated Banks of Europe Corporation) along with its ABD Securities partners; Banque Nationale de Paris, Banca Nazionale de Lavoro, Barclays Bank, Banque Internationale à Luxembourg, and Österreichische Länderbank later joined them. Despite early doubts from some observers, by 1983 ABECOR had 12,000 branches and $440 billion worth of assets. Hypo-Bank also joined 11 other European and Latin American banks to form the Euro-Latin-American Bank in 1974.
Acquisitions and portfolio expansion also marked the bank’s activities during this time. In 1971 Hypo-Bank purchased Westfalenbank of Bochum, and between 1968 and 1973, its stock holdings constituting a 10% or larger stake in a company increased from DM148 million to DM995 million. It made its most famous purchases in the brewery industry, including minority interests in Dortmunder-Union-Brauerei in 1969 and Löwenbräu 1973. In the late 1970s, the bank began to sell off its industrial holdings amid mounting public concern over the power that West German banks were able to wield through their extensive stock portfolios and numerous company directorships. In 1982 Hypo-Bank began to concentrate instead on acquisition and expansion in finance, both foreign and domestic. In 1987 it bought a 15% interest in Italy’s Banco Trento & Bolanzo.
Throughout its long history, the Bayerische Hypo-theken- und Wechsel-Bank has never quite shed its image as a regional bank. It has never rivaled the very largest commercial banks in size or influence, and in fact, Bayerische Vereinsbank surpassed it in the early 1980s as West Germany’s fourth-largest bank. But having survived the most catastrophic events of a turbulent century, its standing as the fifth-largest bank in one of the most prosperous nations in the world is tribute enough to the way in which it has done business.
Hypobank International S.A. (Luxembourg); Salzburger Kredit- und Wechsel-Bank A.G. (Austria); Hypo Trade Finance Ltd. (U.K.); Hypo Property Finance (Ireland); Bayernhypo Finance N.V. (the Nethelands).
Whale, P. Barrett. Joint Stock Banking in Germany, London, Frank Cass & Company, 1930; A History of the Bayerische Hypotheken- und Wechsel-Bank, 1835-1985, Munich, Bayerische Hypotheken- und Wechsel-Bank, 1985.