Shares in German financial stocks soared yesterday on a government proposal to eliminate taxes on the sale of shareholdings between firms, a move which could help reshape Germany's corporate landscape.
The German blue chip index DAX-30 leapt 4.46 per cent to a new closing high at 6,782.39, after market participants woke up to the significance of the proposal, delivered by Finance Minister Mr Hans Eichel on Tuesday.
Traders saw the reform unlocking the huge industrial assets of German financial and banking stocks, freeing up vast amounts of capital for reinvestment and breaking traditional cosy relation ships of the German business establishment.
"This move will violently shake up corporate Germany," said Mr Thomas Mayer, senior economist at Goldman Sachs in Frankfurt.
Financial stocks were the biggest gainers, with re-insurer Munich Re AG closing almost 17 per cent higher at €255 euros and Allianz AG up 12 per cent at €330.
German bank shares were almost equally buoyed, with Deutsche Bank closing 14.81 per cent higher at €81.40 and Dresdner Bank up 11 per cent at €52.70.
The government proposal, which would completely eliminate tax of more than 50 per cent on profits from sales of domestic shareholdings, could trigger a wave of mergers, free up billions in capital and activate foreign interest in the German market.
"This would be the death of Deutschland AG," said an official at a major German insurer, referring to Germany's calcified network of cross-shareholdings and alliances.
"The big mixture of conglomerates would basically be dead because nobody would have any reason to keep all their old holdings that they've had for years," he added. "If it is true, then we're in shock, because we didn't ask for a change of this magnitude."
Corporate Germany has been long criticised for its frozen structure of cross-shareholdings, while the banks have been vilified by foreign investors for their immense industrial stakes.
Banks, in turn, have long complained about the punitive tax on stakes sales, saying they wanted to reduce their massive industrial stakes but dared not because of high tax. Already, profits on sales of foreign stakes can be booked tax-free.
If the new proposal becomes law, it would probably prompt banks to unload large portions of their stakes at a significant profit, refreshing their capital base and allowing foreign firms to get a foothold in corporate Germany.
Deutsche Bank, Europe's largest bank, alone has €22.8 billion in financial assets in its DB Investor unit, created by the bank earlier this year to manage its massive shareholdings, a bank spokesman said.
