Kirch threatens banks' power

THE death knell of the Kirch Media empire is echoing through Germany's archaic economic system and, finally, Fortress Deutschland - with its singular way of doing business - faces a major upheaval.

Kirch died in intensive care while the medicine that could have saved it was at hand - opting for bankruptcy while untapped oceans of money lapped outside the door.

Leo Kirch's empire was an enterprise beholden to the banks, which run vast tracts of the German economic landscape. This power in the national industrial body was forged more than 100 years ago and has never changed. Regional banks became invested with huge clout over the years as they forged a social contract with employers.

Before globalisation, such an arrangement hardly ever went awry. The generation that built the Wirtschaftswunder - economic recovery - after the Second World War could not easily access the kind of money available today. The banks became power brokers, acutely aware of the political realities that reigned in their regions and the fact the mortgages they gave out were paid back by people employed at the factories they kept running.

Two capitalist systems evolved in the world - the Anglo-Saxon model and the German variant where banks intertwined with politics to create a recipe ripe for disaster. While companies are free to choose whichever structure they prefer, in Germany the dice have always been loaded in favour of debt financing due to high taxes on capital gains and poor equity markets.

Undoubtedly, say analysts, the demise of Kirch will mean the end for this way of doing business. Kirch could have gone public two years ago and netted billions of pounds: no-one will forget that in a hurry.

But that was never Leo Kirch's way. He believed in autocratic rule; he always knew best. Banks aided and abetted him - but only until the red ink blotted out the black. Now the the life's work of this Bavarian pastor's son lies in ruins with those banks who finally pulled the plug on his running the remnants of what was once a multi-billion pound empire.

Commerzbank, Germany's third-biggest, Dresdner, Hypo-Vereins Bank and Bayerische Landesbank are effectively running the pay TV arm, including the massive loss making Premiere TV station, and Kirch Media which includes the film library and terrestrial channels.

Under the court-appointed administrator, the company is seeking either to sell these assets wholesale or piecemeal to interested investors. As well as the rights to Formula One, Kirch's Taurus Holding has another glittering prize - a 40% stake in Axel Springer, publisher of the daily paper Bild.

On Thursday, Deutsche Bank gave Kirch three more months to repay a loan secured on the stake. Kirch now has until 30 August to pay back about £465m. If Kirch fails to meet the deadline, the bank is expected to claim the Springer shares and float them to recover the funds.