With expensive accounting rules, an increased threat of litigation and hundreds of millions of dollars in fines for some firms, the once prestigious New York Stock Exchange and other American markets have become unattractive to Germany's biggest companies. Daimler and Deutsche Telekom have fled this year and the few remaining are likely to follow, Spiegel Online reported.
On June 18, the symbol of the German company Deutsche Telekom, DT, made its last run across the ticker at the New York Stock Exchange. Europe's largest telecom company left the world's biggest and most recognizable exchange after nearly 14 years of trading.
The company is currently in the process of delisting from all foreign exchanges and will soon only be traded on its home stock market in Frankfurt.
Deutsche Telekom is just the latest German blue chip to say goodbye to the American capital market. In an emblematic departure, Daimler, the first German firm to be listed in New York in 1993, officially quit trading on the NYSE on June 4, saying that it no longer needed a presence in New York to attract international investors. And Munich-based insurance and financial services giant Allianz abandoned the NYSE last fall.
The recent retreat of German firms from the American capital market has been nearly a decade in the making. Tighter regulations introduced by the United States government in the wake of the accounting scandals in the early 2000s brought extra oversight and added costs for foreign companies listed on the NYSE. Of the 11 firms on Germany's DAX index of blue chip companies that were at one time listed on the NYSE, only four still remain: Deutsche Bank, Fresenius, SAP and Siemens.
"In the 1990s, there was a great euphoria for joining the American capital market, especially for mergers and acquisitions" says Rüdiger von Rosen, the managing director of the Deutsches Aktienenistitut, an association that represents publicly traded German companies.
A listing on the American capital markets also brought with it a certain prestige for foreign companies. In addition to offering German firms greater access to institutional investors, it also meant the firms would be closely monitored by Wall Street analysts, which in turn could attract new investors and establish a higher profile for the companies internationally.
The attractiveness of the American capital market to German firms began to erode with Sarbanes-Oxley. In the wake of accounting scandals at large US companies like Enron and WorldCom, the law tightened regulations on public companies listed on US stock exchanges.
Named for the law's co-sponsors, Paul Sarbanes, a Democratic Senator from Maryland, and Michael Oxley, a Republican Congressman from Ohio, the law tightened accounting practices to prevent companies from cheating on investors. From the start, companies voiced their displeasure with the high costs required to comply with the reforms. In one provision, companies were obligated to hire an independent auditor to monitor and report on the company's financial reporting. The regulation was meant to protect investors from fraud, create greater transparency of a firm's risks and to expose accounting firms that were helping companies cook their own books.
Even so, "some companies have said that the American capital market is more attractive than before," says Georg Stadtmann, a German professor of business and economics at the University of Southern Denmark who studies financial markets. "Accounting rules put a mechanism in place that makes companies suddenly aware of risky parts of their business."
The double-digit costs of SEC complaince, however, are paltry compared the hundreds of millions of dollars in liability -- either through lawsuits or investigations and prosecutions -- to which a US listing can expose foreign firms. Shareholders can take companies to court far more easily under SEC regulations than those of Germany's stock market regulator. And the US Justice Department and the SEC have been more assertive in investigating publicly traded companies following a wave of investment fraud schemes like the one by former Nasdaq chief Bernard Madoff, who swindled prominent investors out of billions. Read more.
