Chapter 403

Chapter 403: Divestment

Cape Town's decision to compromise with the East African Kingdom marked a positive development for Ernst. It allowed him to shift his focus away from South Africa and concentrate on more pressing matters.

In October, instead of returning to the first town, Ernst headed straight for Nairobi.

Hechingen Investment's factories in Nairobi were now fully constructed and operational. The headquarters of Hechingen Bank had also been relocated to this thriving city, boasting luxurious infrastructure and facilities.

Ernst wasted no time and inquired about the current investment situation in North America. The response painted a mixed picture. The bank had initiated the eleventh round of asset sales, successfully divesting 30% of its fixed, high-quality investments. This had generated significant profits. However, the economic conditions in North America remained challenging, with the value of the remaining assets continuing to rise amid a speculative market.

Ernst nodded thoughtfully and commented, "Sometimes it's wise to bite off more than we can chew. We can't allow ourselves to have it all. How is the situation in Europe?"

The bank executive explained that in Europe, they hadn't sold as many assets as in North America, but the returns had been more favorable. The strong reputation of the Hechingen Consortium had made it easier to attract buyers, even for projects in unfavorable locations. However, many buyers wanted to retain the original brand names of the businesses they acquired.

Ernst firmly shook his head, emphasizing that using the registered brand name was not an option. He explained that while they could continue to provide supply channels, using the Hechingen brand name was a matter of credibility. He mentioned the possibility of franchising the brand to interested parties.

Supply channels had always been a crucial support for the supermarkets within the Hechingen Consortium. With its extensive reach in light industry and the electric power sector, the consortium provided a diverse range of products. Moreover, the agricultural products from East Africa could be distributed through these supermarket channels.

The strategic move to streamline operations led to an exodus of capital from Hechingen Bank, as some depositors panicked and withdrew their funds. However, the bank was well-prepared for this eventuality, having substantial cash reserves and the proceeds from asset sales to cover the withdrawals.

The bank also began to address its bad debts and took steps to shed risky assets during this market boom. They raised their loan thresholds and turned down companies with operational issues or unrealistic projects. The bank's branches withdrew funds to ensure the safety of savings.

Governor Buckley of the Cape Colony, during a wave of minor runs on Hechingen Bank, had issued a statement to counteract the false rumors, reassuring depositors that the bank was merely optimizing its investment industry structure and was not in any operational danger.

However, the impact of these refutations was mixed. In Germany, the bank's credibility and control over the media had helped stabilize depositor confidence. Yet, in other regions, particularly London, where the financial sector was highly competitive, Hechingen Bank's rivals seized the opportunity to discredit the institution. Many financial firms in London rated Hechingen Bank as high-risk.

Nevertheless, the minor turbulence did not perturb Ernst. After giving his instructions to Hechingen Bank, he embarked on a tour of textile factories in Nairobi.

Ernst was updated on the current textile production capacity in Nairobi, which could meet about 70% of East Africa's demand. The remaining 30% was still supplied by factories in the Far East. Ernst acknowledged that the Far East market was sizeable and attractive due to its cost advantages, but its profit margins were lower compared to Europe. Labor costs played a significant role in this scenario.

He emphasized that they could continue providing supply channels, even without charging a commission, but using the Hechingen brand name was off the table. Ernst was determined to protect the consortium's brand integrity.

Additionally, he discussed the ongoing process of cleaning up the bank's bad debts and asset sales. The bank would be more selective in approving loans and reject companies with operational problems or unrealistic projects.

Ernst's vision for the Hechingen Consortium remained unwavering. He was ready to divest from regions that no longer aligned with their strategic direction and was committed to optimizing the consortium's structure for long-term health and growth.

(End of this chapter)