against non-voting preferred stocks.55 IPOs that were led by PM were characterized by a
commitment of initial owners to hold a minimum fraction of the firm’s stock (typically 50%) for
at least 5 years. PM was also innovative in increasing the fee volume by being the first to choose
the IPO price rather than the face value of the stock as the basis for commission (leaving, of
course, the percentage unchanged or even slightly increasing it).56
Banks reacted to PM’s activities by making it more difficult to enter the market, justifying
this with the failure of firms that were brought to the market by PM. While it was always required
to have a bank as an underwriter to be accepted for the Amtlicher Handel, it then also became
necessary de facto for the Geregelter Markt and the Freiverkehr (Deutsche Bundesbank, 1997, p.
35).
Nevertheless, starting in 1983 an increase in the number of IPOs in Germany can be
observed. Initially the number of banks that were involved in the issuing business was quite low
(Gerke, 1988, pp. 224-225). In 1986 there were 4,500 financial institutions in Germany, about
240 of which were members of the exchange. In 29 out of the 51 IPOs that were carried out by
banks (not PM) between 1975 and 1985, Deutsche Bank was the lead underwriter (Giersch and
Schmidt, 1986, pp. 71 & 74). This picture slowly changed. While between 1990 and 1996 it was
still the case that in 73% of the IPOs the lead underwriter was one of five banks (Deutsche Bank,
Dresdner Bank, Commerzbank, BHF-Bank, DG Bank), this fraction fell to only 41% between
1997 and 2000 (DG Bank, Deutsche Bank, Commerzbank, Dresdner Bank, West LB).
The banks’ attitude towards IPOs was probably also influenced by the changing
environment for banks. One major result of the process of liberalization, deregulation and the
emergence of new technologies has been a considerable intensification of competition in the
financial sector. As a result the margins in the savings and loans business decreased, the legal
entry barriers for investment banks were reduced, and listings abroad became a viable alternative
55 Until four of five firms whose IPO was led by PM in the beginning of the 1980s used non-voting preferred stock,
there was strong resistance by German banks to this form of financing (Schürmann and Korfgen, 1987, p. 28). In
the following years non-voting preferred stock was used in 41% of the IPOs. Among them Porsche, Nixdorf,
Henkel, VDO, and Massa.
56 Large universal banks followed this practice and, interestingly, the myth disappeared that the IPO price of stocks
with a face value of DM 50 (€ 25) must not exceed DM 200 (€ 100).
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