Cablegate: International Regulatory Cooperation Top Theme at Luncheon

DE RUEHFT #2579/01 2781257
O 051257Z OCT 09




E.O.12958: N/A

SUBJECT: International Regulatory Cooperation top theme at Luncheon
for Frankfurt Financial Leaders

FRANKFURT 00002579 001.2 OF 002

Sensitive but unclassified; not for internet distribution.

1. Summary: (SBU)CG Alford hosted a luncheon at his residence on
September 16, 2009 for Ambassador Philip Murphy and leaders from the
Frankfurt financial community. Guests discussed a variety of
political and financial issues, with a focus on maintaining good
relations between governments during the financial crisis. Some
participants requested two main things of the United States: to be
wary of protectionism during these economically uncertain times; and
to have another 'Transatlantic Economic Forum' which was held a few
years ago in Berlin and focused on trade between Germany and the US.
End Summary

List of Invitees
(SBU)The luncheon hosted by Consul General Edward A. Alford in honor
of Ambassador Philip Murphy was attended by:

Johann Berger, Member of the Board of Directors of Helaba state bank
Martin Blessing, Chairman of the Board Commerzbank;
Clemens Boersig, Chairman of the Supervisory Board of Deutsche Bank;

Andreas Dombret, Vice Chairman Europe for Bank of America;
David Knower, Chief Operating Officer of Cerberus Capital Management
Nader Maleki, President, International Bankers Forum;
Konstantin Mettenheimer, Senior Partner of Freshfields Bruckhaus
Friedrich von Metzler, Managing Director of Metzler Bank;
Steffen Sachse, Senior Advisor of the Federal Agency for Financial
Market Stabilization (SoFFin);
Hugh Sullivan, Head of Investment Banking Germany, Austria,
Switzerland Merrill Lynch;
Jean-Claude Trichet, President of the European Central Bank.

High Marks for Crisis Management by Central Banks
--------------------------------------------- ----
2. (SBU)All members present gave high marks to the rapid and
determined action taken by central banks during the crisis. The
President of the European Central Bank, Jean-Claude Trichet, added
that he was equally impressed by the decisive and united response of
political decision makers which he considered unprecedented and a
testimony to the progress that has been made in international
cooperation. He and others claimed, however, that better regulation
was still needed in order to prevent future crises, and that the
window of opportunity to make those changes was closing fast.

Strong Transatlantic Relationship without Protectionism
3. (SBU)Participants agreed that the German-American relationship
was strong. Mr. Boersig of Deutsche Bank, however, thought that the
relationship should be continually strengthened by ongoing
discussions. He specifically requested that the United States and
Germany hold another "Transatlantic Economic Forum", which was first
held in Berlin in the fall of 2007. Organized by the American
Academy, it included top political and financial leaders from both
sides of the Atlantic who discussed relevant financial issues
between our countries.

4. (SBU)Boersig also noted that the US should be wary of
protectionism, which is a common reaction for all countries during
economically difficult times. Mr. Trichet, of the ECB, echoed this
sentiment saying that he was gravely concerned that protectionist
measures would actually endanger the recovery.

The Recession in the US is Technically Over
5. (SBU)Asked about his assessment of Bernanke's statement that the
U.S. recession "is very likely over," Trichet emphasized that
Bernanke was careful to point out that the recession was only
technically over. Although the markets and the media love good
news, the economic outlook remains uncertain. The ECB expects
recovery to be uneven, as stimulus measures currently are buoying
economic data and it remains to be seen if economic growth will
remain stable once these measures run out.

6. (SBU)Trichet went on to point out that though the financial
crisis has revealed the enormous fragility of the global financial
system, little progress has been made in stabilizing it. While both

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the capital and the money markets are recovering, they have not come
back to pre-crisis levels. Boersig added that German banks in
particular are vulnerable because of the lack of fluidity between
the three branches of the German banking system (commercial banks,
state banks, and savings and cooperative banks).

7. (SBU)Trichet noted that in the Euro zone economic imbalances
continue to occur, but they are not a reason for concern. The range
of deviations between European countries, Trichet said, mirror the
range of economic variety throughout various parts of the United
States, whose economic model the ECB had studied thoroughly before
introducing the Euro. If anything, Trichet feels that the
eurosystem has facilitated the management of the crisis.

Reducing the Relative Importance of the Banking Sector
--------------------------------------------- ---------
8. (SBU)Eighty percent of European companies depend on banks for
their financing versus twenty percent of U.S. companies. Mr.
Boersig, Johann Berger of Helaba Bank, and Martin Blessing of
Commerzbank agreed that this percentage needs to be lowered and that
more German companies ought to finance themselves through the
capital market. This appears to be happening this year as German
corporations have issued a record number of corporate bonds (200
billion Euros) in order to raise money. Furthermore, these bond
issuances, all agreed, appear not to be prompted by insufficient
credit availability, but rather by low interest rates and companies'
increased willingness to take risk. However, the majority of German
companies are too small to raise money on the capital market.

10. (SBU)Mr. Blessing stated that in Germany insurance companies
may also be contributing to a shortage of credit, not just banks,
because insurance companies collect much of the savings. These
companies, however, tend to be risk averse, which leads them to
invest primarily in sovereign bonds, thereby reducing the flow of
capital in the market.


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