A Cozy World Comes To An End

Reality has caught up with Germany's stodgy "universal" banks. Long the lords of a domestic financial system that lets commercial and investment banking take place under one roof, the German Big Three must now scrap with global competitors for juicy international deals. As the commercial/investment firewall in U.S. banking culture begins to crumble, the winners in the global banking race will be those that can deliver well-priced loans, wide placement for equities, asset management, and the savvy to execute cross-border deals.

To stay in the game, the Continental banks are going all out. They're poaching talent from top London firms, paying salaries formerly unheard-of on the Continent. They're buying up investment banks: Swiss Bank/Warburg, ING/Barings, and Dresdner/Kleinwort Benson are just some of the biggest and most recent mergers in the news. For the Germans, the challenge is formidable. Their lifeline--a cozy relationship between lender and corporate borrower--is no longer enough to nourish them through the shakeout ahead. Here, BUSINESS WEEK looks at the coping strategies of Germany's No.1 and No.3 banks.

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