German Origins Meet American Zest: Vera McVey and HVB See Their Future in an Integrated Capital Markets Bank in the Americas

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Hypo Vereinsbank AG (HVB) is one of the four largest private banks in Germany that collectively hold about a 16% market share of the German banking market. HVB Group calls itself the "Bank in the Heart of Europe" and focuses on the interconnected economic area of Germany and Western Europe as well as Austria/Central and Eastern Europe--in all, serving 9.8 million customers through 2,000 branches in 15 countries. The Group has three major business divisions two primarily in retail and middle market lending and one in Corporates & Markets, the investment banking division of HVB.

HVB Americas operates as part of Corporates & Markets and complements the Group's presence in the global capital markets. As chief credit officer of HVB Americas & Asia, Vera McVey heads a staff of 60, including senior risk managers, with country-specific as well as industry and product expertise.* The senior risk managers, in turn, supervise teams of analysts and risk underwriters, McVey is a member of the Group Credit Committee in Munich.

As part of her regional risk management function, McVey also is responsible for workout and is a member of the Group Risk Committee. Her credit decisions affect portfolios in North and South America as well as in Asia. She is comfortable in managing her responsibilities because she is confident in the ability of the team of people she has been able to build in risk management. RMA's Nicholas Hayes interviewed McVey at HVB's Manhattan offices in August.

NH: Please give our readers a brief background on the German banking system and how it differs from that in the U.S. system, as well as HVB's role in that system.

VM: The current German banking system includes private-sector, public-sector, and cooperative banks.

Private banks, such as HVB, are generally organized as "universal" banks (meaning there were never any Glass-Steagall-type restrictions), providing the full range of commercial, retail, investment, and, in certain cases, mortgage banking services.

Public-sector banks include local savings banks that started out as purely retail banking specialists, as well as the Landesbanken that provide them with various wholesale banking services. Public-sector banks, which benefit from guarantees by the public bodies that created them, represent about 50% of Germany's corporate credit creation. The large role of public-sector banks has meant a far different competitive landscape in Germany because their motivation to make loans or provide other banking services often is not profit considerations or risk evaluations, but the desire in further various social or other public policy objectives. However, public-sector banks will lose their guarantees in 2005 based on an agreement between the European Commission and the German government reached in 2001, so we hope that will help level the competitive landscape.

Cooperative banks (mutual banks) were originally established in the mid-1800s to provide banking services to their members, primarily in the agricultural business. Members are expected to own shares in their cooperative. They, too, often pursue goals other than risk and reward calculations, much like credit unions in the U.S.

Regardless of their ownership or regulatory status. all types of German banks are more and more active in the capital markets. Compared with those in the I.T.S., the capital markets in Germany are quite underdeveloped. Large German corporations access the capital markets globally, but the lack of a broad investor base in German capital markets will continue to be a challenge for most German issuers. For example, the U.S. has funded pension funds, which represent a huge investor segment of the capital markets. Germany has a "pay as you go" system, and, therefore, a pension fund market as such does not exist. I also would argue that the U.S. capital markets benefit uniquely from the active participation of Asian investors, who want mostly U. …