For management at Germany's state-supported regional banks, July 18 will bring a greater case of the Monday blues than usual. That's because Monday will be the day that business as usual transforms into just plain business for those banks, which will lose their preferential status as beneficiaries of state-guaranteed loans.
For decades, Germany has maintained a system of banking apartheid. On the one hand, you had publicly traded financial institutions such as Commerzbank (NQB: CRZBY) and Bayerische Hypo-Und Vereinsbank (OTC BB: HVMGF), which made money the old-fashioned way -- borrowing low and lending high.
On the other hand were the Landesbanken, regional banks whose debt obligations were guaranteed by the various regional German governments. As a result of these guarantees and the security they provided debt issuers, these banks were able to raise money at interest rates as much as 0.5% cheaper than their public banking rivals. Consequently, they were able to steal market share from their larger, publicly traded brethren, as well as earn excess profits and provide loans at better-than-market rates, primarily to mid-sized businesses in their home regions. Naturally, this situation made life hard for the publicly traded banks.
And just as naturally, things are starting to look up for those publicly traded banks. The Landesbanken have, over the past four years, been working frantically to prepare for Monday's banking sea change, and they have already begun raising their loan rates in anticipation of their soon-to-be greater cost of capital. The more they're forced to travel that road, the easier it should become for institutions like Germany's No. 1 bank, Deutsche Bank
Of course, it won't all be beer and Wiener schnitzel for the big German banks. The introduction of real competition into the business-loan market will likely attract the interest of foreign banks as well. Citigroup
But with their home-field advantage, and significantly lower price-to-book values than their international rivals carry, local institutions such as Deutsche and Allianz still look like the better bets for playing the change in the German banking environment.
Have an opinion on the publicly traded banks' prospects under the new system? Share it on the Fool's own Germany (DAX) discussion board .
Fool contributor Rich Smith does not own shares in any company mentioned above.