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Trading In Their Caution

Deutsche Telekom Gives Germans Stock Fever


FRANKFURT, Germany — Rational-expectations theorists, hold on to your hats. Germans have caught a bad case of stock market fever.

Most of the time, Germany is a nation of dedicated risk avoiders. And rightly so: Twice in this century, its citizens have seen war and hyperinflation devour their life's savings. Bitter experience has taught them to never put their marks anywhere without a firm guarantee, and that means they almost never buy stocks.

Perhaps in no other way is the German psychological makeup so different from that of the U.S. Whereas the ever-hopeful American middle class hands over billions of dollars to mutual fund managers in their 20s and 30s, cautious Germans sock their money away in savings accounts that draw a paltry, but guaranteed, 2% interest. (However, Germany's negligible rate of inflation makes that rate more attractive than it would be in America.)

Bonds? Life insurance contracts? That's about as adventurous as the German individual investor normally gets. Mutual funds are in their infancy here, and just two big German companies--Daimler-Benz and Siemens--operate anything like an American-style managed pension fund. Overall, less than 5% of the population owns stocks, compared with more than 40% in America.

But that was yesterday. Today, small savers who a few months ago couldn't have told you what a mutual fund was are positioning themselves to snap up the shares of a huge initial public offering to take place Nov. 18: $10 billion worth of stock, nearly double the total value of all the new issues in Germany last year, which itself set a record. The offering would give the new investors a 20% stake in Telekom.

Stranger still, where should these eager new investors be running with their hard-earned marks but to Deutsche Telekom, the government telephone and cable TV monopoly--until this year one of the most popular whipping boys in the land.

Just months ago, bringing up the subject of the phone company here was a sure way to get a laugh. The company was famous for--to put it delicately--terrible service. Getting a phone line installed in your house could take months, and even then, chances were that Telekom's directory assistance operators couldn't give you the numbers you wanted.

Products taken for granted by phone customers the world over--such as extension phones or itemized long-distance bills--have long been unavailable in Germany. Phone customers here who suspected overbilling have had almost no means of appeal.

And even on correct bills, the rates are sky-high. Placing a local call in Germany is almost as expensive as calling coast-to-coast in America. When Telekom issued new rates in January and promptly made billing errors all over the country, people marched down the streets in protest.


So what is making these same people now march to their brokers, eager to entrust Telekom with their money?

For one thing, Telekom has begun to clean up its act. But the broader answer is that Telekom's initial public offering represents much more than just another government enterprise trying to raise money on the stock exchange.

Telekom's huge offering marks an all-out, once-in-a-generation attempt by German policymakers to turn their stock-shunning country into a Volk von Aktionaeren, or nation of shareholders.

"This is all part of a growing understanding that we have to give the little flower, capitalization in Germany, some fertilizer," says Ruediger von Rosen, managing director of the German Stock Institute, a group that is trying to promote equity ownership.

Von Rosen and other analysts argue that if Germany can create an "equities culture," that would go a long way toward solving some of the deep problems now eating away at the national economy.

A big one is chronically high unemployment. There are many causes, but one of them undoubtedly is the conservatism about savings and investment. At the moment, with all of those individual savers cautiously pumping their spare marks into bank accounts, most business financing here must come in the form of bank loans--and banks here are not generally known for a spirit of daring and entrepreneurship.

If a measure of risk taking were injected into the German investment mind-set--and if the capital markets were to develop accordingly--Von Rosen believes that low-cost equity financing would grow, providing the funds that existing and start-up companies need to expand and create thousands of new jobs.

The hope here is that Telekom will be just the beginning. Its offering, if successful, presumably would whet the appetites of individual investors for more German offerings from former public-sector companies--for another slice of Telekom, perhaps, or for Postbank, a savings institution that used to be part of the post office; for Deutsche Bahn, the German railway system; or for the 36% stake in the airline Lufthansa that the federal government still holds and wants to sell.

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