Germany used to be a financial desert as far as private investors were concerned. People wanting to trade stocks had to pay their brokers a full 1% of the transaction value. The clearing and settlement system was slow, and stock market information was in pitifully short supply.
Then Karl Matthaus Schmidt had a brainstorm. Having just completed business studies at Nuremberg University, he looked across the Atlantic to discount brokers such as Charles Schwab Corp. Why couldn't he combine Internet technology with high-quality stock market information to give investors a cheap, reliable way of trading securities? In 1994, Schmidt set up ConSors Discount-Broker in Nuremberg with $5 million in capital provided by SchmidtBank, the family bank his father runs. Germans flocked to the new system, especially after a popular equity culture began to develop following the privatization of Deutsche Telekom in 1997. "ConSors made direct brokerage popular in Germany," says Ralf Dibbern, banking analyst with M.M. Warburg & Co., the Hamburg private bank.
Indeed, banks such as Commerzbank and Deutsche Bank hurried to set up their own discount brokers. But even now, ConSors handles more trades than any other online broker in Europe. Only Commerzbank's Comdirect has more customers. ConSors' first quarter pretax profit of $8 million was well above the $5 million posted in the same period last year.
Schmidt, 31, comes from a line of bankers stretching back six generations. He took ConSors public last year, selling 25% of its stock on the Neuer Markt. The $360 million in proceeds funded expansion at home and abroad. "We also wanted the publicity in order to establish our brand name," says Schmidt. On the day of the IPO, he rigged up black flags at half mast in mourning for the big German banks. Meanwhile, scantily dressed models riding on "cyber surfers" brought Frankfurt traffic to a halt.
With a market cap of almost $4 billion, ConSors is Germany's fifth-largest private bank. "Being first is a big strategic advantage when it comes to the Internet," Schmidt says. Now, he's trying to build on that lead by competing in online insurance--perhaps more good news for European consumers.