Riese warns of next banking crisis

After a record gross profit in 2024 of 3.3 (2023: 3.2) billion euros, the DZ Bank Group is keeping the dividend payout to the owners, almost 700 Volksbanken and Raiffeisenbanken, constant at 448 million euros. CEO Cornelius Riese combined this decision at the annual press conference on Tuesday with criticism of the industry, in which it has become common practice to optimize the return on equity by reducing equity.

Without naming the competitors, Riese is likely targeting Deutsche Bank and Commerzbank , which want to return several billion euros in "surplus equity" to their shareholders over the next few years through dividends and the repurchase of their own shares, thereby increasing earnings per share and thus the return on equity while maintaining the same annual profit. This industry trend, said Riese, is "an indicator of an impending financial crisis in the medium term." This is because the danger is growing that banks will no longer be able to absorb sudden losses on their own.

DZ Bank, which is not listed on the stock exchange and has a solid shareholder base in the VR banks, does not want to follow this industry trend. Compared to Commerzbank and Deutsche Bank , which are aiming for core capital ratios of around 14 percent, DZ Bank was already well capitalized at the end of 2024 with a core capital ratio of 15.8 percent. According to Riese, the core capital ratio should rise to more than 16 percent. For the current year, the DZ Bank Group expects a pre-tax profit of 2.5 billion euros to three billion euros. This will reduce the return on equity, but this does not play a major role for the cooperative association.

But not everything is going well there either. Union Investment (up 27 percent on the previous year) and the insurer R+V (up 23 percent) each made unexpectedly high profit contributions of 1.2 billion euros to DZ Bank's consolidated profit, which are based primarily on capital market business. But the fund company Union, whose open-ended real estate fund "Uni Immo Wohnen ZBI" had to be written down by 17 percent last year, suffered reputational damage. It has also just received a negative court ruling. According to this, the fund should not have been sold in one of the lowest-risk classes. DZ Bank CEO Riese believes that the ruling, which will probably be appealed, threatens the existence of the entire real estate fund industry. "We are talking about the future of real estate funds in Germany - nothing more and nothing less," said Riese.

Open-ended real estate funds have demonstrably fluctuated very little in recent decades, and investors have accepted low returns for this low risk. If they are now classified in high risk classes together with derivatives and illiquid investments, "real estate funds will no longer be sold," Riese predicted. And the DZ Bank boss continued: "Who would then still invest in real estate in Germany?" He listed: home builders, housing cooperatives, the state. But if more hedge funds also invest in apartments, social questions would also arise, he warned, with a view to residents, who would probably have to fear considerable rent increases.

In the corporate customer business, DZ Bank AG 's lending volume grew by six percent to just over 90 billion euros in 2024. Demand for domestic investments is rather weak, but DZ Bank has also grown here, said board member Johannes Koch. DZ Bank is growing more strongly with structured financing of acquisitions and projects with a German connection abroad, such as renewable energies. Here, DZ Bank relies on its expertise at foreign bases, for example in New York.

However, credit growth will slow down in 2025, Riese predicted. A large part of the risk provisions of EUR 457 million (previous year: EUR 82 million) in 2024 was attributable to the case of the agricultural group Baywa , in which DZ Bank is involved with a mid-three-digit million amount. After all, it had only recently managed to put together a banking consortium and thus did not have to bear the credit risk alone, said Riese. He contradicted the idea that there was also an obligation to contract with VR banks that were expanding too rapidly. DZ Bank carefully examines every credit and liquidity decision - even if it concerns a member of the cooperative network. "We have a culture that invites contradiction," assured Riese.

On the subject of ESG/sustainability, the CEO complained that in the USA "the opportunism of the elites there" was difficult to bear. DZ Bank does not need to correct itself after the Trump administration took office: "We are not the ESG police, but the transformation facilitator," Riese clarified. However, one should think about less bureaucracy for banks when it comes to ESG financing.

DZ Bank also wants to grow by playing a role in the "tactical consolidation" of the banking industry. Riese mentioned possible European initiatives in payment transactions. Most recently, DZ Bank took over Apobank's depository business and improved to number three in Germany in this area.