Defence: The New Boom Industry

• Commerzbank supports the defence sector with guarantees and equity placements, not traditional loans.
• Munich thrives as a hub for defence and space start-ups due to strong business-science collaboration.
• Commerzbank backs self-defence rights but avoids ties to banned weapon manufacturers.

Mr. Kotzbauer, you were at the Security Conference in Munich last weekend. What role does a banker have?
As a bank, we also finance companies in the security and defence industry. It is important for us to understand the whole environment. For us, the evaluation of the geostrategic landscape is a basis on which we make decisions, assess risks and accompany all our corporate clients with their international plans. . Commerzbank was founded in 1870 as a foreign trade bank, and we are used to accompanying our clients abroad. I find an event such as the Security Conference very helpful, because you get in touch with the relevant people personally.

Who are your clients?
These are the large traditional companies, but also the small start-ups and new suppliers. It is no different in the security and defence industry than for other sectors in the economy. Here too, we cover the entire bandwidth.

What role do private banks play in defence financing? It is understood that arms are commissioned by the state and are also paid for by the state.
True. Classical credit financing also does not play a major role in this area. It is about prepayments and the guarantee business.

What does that mean?
When a company receives an order from the state, the company usually receives a deposit for the project, and this usually requires a corresponding bank guarantee. In addition, bank guarantees and similar banking services are often requested when importing intermediate products or exporting products. This is a service we provide. The guarantee ensures that the financial side of the supply chain gets going. The second area is equity placement. There’s more and more talk about IPOs, for example, Hensoldt and Renk in recent years or KNDS, as announced in January. Commerzbank has supported many of these transactions in Europe.

Isn't the industry excessively risky? Developments take a long time, there are no gains for years ...
It is no different in defence financing than in other industries. Nevertheless, it is important for us to be involved in start-ups, because this is where the new industry is developing and new players are coming onto the market. It is important that we have a clear view of the business model. This requires a deep knowledge of the industry – which we have.

In recent years, the Munich area has developed into a large location for arms and space startups. What are the reasons for this?
In the past, I was responsible for the south of Germany at Commerzbank and worked in Munich. It's a great and quite unique ecosystem that has emerged here. Munich is a role model – I always refer to it as a role model when it comes to the networking of business and science.

What makes it a good location?
There are many university spin-offs here, and the Technical University of Munich plays an important role in this. In addition, there are a good number of large investors, equity investors, who are willing to finance young companies. There are also very strong industrial companies here. All in all, the clustering of industry has been focused over many years, making this site so attractive – not just for defence companies. Just look where Apple or Microsoft are going. Or take Martinsried with its strong biotech companies. I could list many more examples. We need to intensify cooperation between business and science everywhere. That is also how Silicon Valley developed.

What is the proportion of armaments in Commerzbank's business?
In our credit book there are 115 billion euros in the Corporate Clients segment. Defence accounts for a comparatively small, single-digit billion amount. But, as I said, the traditional credit business is not the decisive factor here.

Not too long ago, the arms sector was considered taboo and many banks ruled out lending in this area.
We were always clear in our attitude, even when that was not yet in vogue. In the past, the bank that it is in favour of companies in the defence sector when it comes to corporate lending, because it believes in the right that sovereign states have to defend themselves – even at a time when this has still provoked criticism. It was equally clear that we did not have any business relations with the manufacturers of outlawed weapons.

Nobody likes to live in a world where the arms business is booming. What is your expectation for the industry?
You are right, nobody wants that. But it is a reality that we are facing. We will have a further strengthening of the Bundeswehr in Germany, and Europe will also continue to invest in this area. That is no different. We need to be able to defend ourselves – we need to catch up. As much as we regret that.

We received the permission to translate it into English from Münchner Merkur.