High Marks : Frenzied Deutsche Telekom Trading Ushers In New Era
A hoped-for new era of investor capitalism opened with a bang on Monday when more than 2 million Germans got their first taste of Wall Street-style trading--and the thrill of making an instant paper profit.
In a rare and giddy climate of small-investor curiosity and promotional hype in which the turnout far exceeded expectations, about $13.3 billion worth of new shares in Deutsche Telekom, the German telephone and cable TV monopoly, began trading in Germany and New York. The issue was five times oversubscribed.
The enthusiastic response among individual investors in Germany appeared to bode well for the German government’s strategy of nurturing an investor mentality among the long-reluctant German people, who tend to put their money in savings accounts if not mattresses.
On Monday, equestrian police had to close off streets in the heart of the German financial capital, Frankfurt, and passersby paused to gawk at an immense corporate promotional sculpture--71 big, flashing, lighted cubes in Telekom’s new official color, magenta--which incongruously covered most of the plaza in front of the stately renaissance facade of the Frankfurt Stock Exchange.
A huge digital clock was also positioned on the plaza, heightening the public excitement by ticking down the seconds until trading began.
German Finance Minister Theo Waigel watched with a smile from the floor of the exchange as selling opened and dozens of traders flung themselves at Telekom’s stock specialist, who was color-coordinated for the occasion in a magenta pocket handkerchief and tie. The traders screamed out orders, waved slips of paper in the air and juggled multiple cellular phones.
And throughout Germany, about 2 million small investors--many of them ordinary telephone customers who have never owned stock before--watched the stock price vault to $22.05 in the first few minutes of trading from the subscription price of $18.94 per share.
Volume in the first two minutes was 24 million shares, and the Frankfurt Stock Exchange had to quadruple its normal computer capacity to handle the opening-day rush. Trading was also kept open an extra two hours on Monday.
In New York, Deutsche Telekom rose $2.61 to close at $21.50 on the NYSE on trading of 18.1 million shares. Trading begins today in Tokyo.
The frenzy in Frankfurt was a fitting climax to a months-long Telekom buzz throughout Germany. Telekom has spent the last few months blitzing the country with promotional fliers, billboards and radio and TV ads, seeking to persuade non-investors to try their luck on the stock market.
To further whip up small-investor interest, Telekom had also offered bonuses to early bird purchasers, such as discounts on phone bills.
By Monday morning, it seemed the whole country had come under the spell.
“The Stock Market Is Bubbling,” cheered a banner front-page headline in the mass-market Bild. Meanwhile, the conservative newspaper Die Welt called the imminent trading bell “the mo ment of truth.”
And those famously skittish German savers turned out to have snapped up about 46% of the offering, 285 million of 623 million total shares. (That total does not include a mechanism allowing Telekom to issue 90 million more shares, as necessary, to regulate price and demand.)
“One can say without hesitation that after this initial public offering, the Germans can cast aside their nicknames as stick-in-the-muds when it comes to shareholding,” Telekom Chief Executive Ron Sommer said. “Private demand was an important motor for the oversubscription.”
Monday’s high turnout of first-time investors was precisely what the German government had hoped to see. Bonn is interested in the outcome of the Telekom offering not because it gets some of the proceeds--it doesn’t--but because it wanted to use the gigantic flotation as a social-policy instrument. The idea is to encourage large numbers of risk-averse Germans to take some of their money out of those beloved, super-safe bank accounts and put it into the stock market.
Germany has the least developed equity culture of any industrialized country--only about 5% of the population own stocks versus 40% of Americans--and in a time of chronic, double-digit unemployment, the government believes that if it can change savings habits and create a risk-tolerant investment mentality, German business will have easier access to the low-cost equity financing they need to create new jobs on a large scale.
If people hear that their friends have made a killing on Telekom stock, it is hoped, they’ll be tempted to try their own luck--say, next year, when the government plans to put the final 35.68% slice of the airline Lufthansa it still owns on the market.
“The privatization of Deutsche Telekom must not remain a unique event,” said Werner G. Seifert, chief executive of the stock exchange. “The potential for further privatization of federal, state or municipally owned property must be carried out in the market.”
Such signs of institutional and government support have helped to fan the stock-market flames in Germany. Investment neophytes have concluded that the Telekom offering is politically so important that the authorities simply won’t allow the stock price to go down.
However, foreign buyers have been more restrained. Whereas most independent analysts expect the Telekom shares to rise in the short term, the price is likely to come under tremendous pressure in the coming months and years, as the telecommunications industry is deregulated in Europe and Telekom is forced to compete with powerful outsiders.
About one-third of Monday’s offering was sold to non-German institutional and individual investors.
Times researcher Christian Retzlaff in Frankfurt contributed to this report.
