Regal Assets Analytics

Friday, May 24, 2024

    German Merchant Banks

    As the winds of economic prosperity moved further north in Europe, German merchant banks grew in importance and dominated banking and finance throughout the sixteenth century.

    The initial momentum however, until.the discovery of the trading routes to the Indies and the opening of the markets of southern Asia that German banks rose to a position of eminence in international finance.

    The discovery by the Portuguese of the trading routes to the Indies and the opening of the markets of southern Asia brought a shift in European trading patterns from the Mediterranean to the Atlantic seaboard. This shift changed the fate of the Low countries and contributed to the development and growth of Antwerp into a sophisticated international money market.

    German banks continued to dominate international banking by moving the center of their activities to this city. The most notable of the German merchant banks were the Fugger, the Welser and the Hochstetter and performed the same essential functions that had previously belonged to the Italian banks.

    Except that, with capital now more abundant than in the previous century, those banks played a more important role as financial intermediaries.

    The assets of the Fugger bank, the most prominent of the German merchant banks, were made up of holdings of land, mines and commodities and its loan portfolio included credits to trade and industry and such influential clients as the Tudors of England and the Hapsburgs.

    These assets were funded through equity capital, deposits and borrowings from the Antwerp money market. Loans to the Hapsburgs, for example, were funded in large part through the Antwerp money market and were made at a gross spread of about 4 percent per annum. The Fugger bank financed the credit needs of the Hapsburgs for a century and a half.

    Although the bank earned substantial profits from its imperial connection, ultimately it had to enter into a workout arrangement reducing interest rates and extending loan maturities. In 1650 the bank had to write off the Hapsburg debt, wiping out most of the profits it had realized with this client in the course of the previous century.

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