Deutsche and Commerzbank: a marriage of (in)convenience?

The logo of Germany’s Commerzbank is seen in the late evening sun on top of its headquarters in Frankfurt, Germany, September 29, 2016. — Reuters pic
The logo of Germany’s Commerzbank is seen in the late evening sun on top of its headquarters in Frankfurt, Germany, September 29, 2016. — Reuters pic

FRANKFURT AM MAIN, Jan 18 — Will they or won’t they?

If Germany is to become home to a global banking giant, as Berlin wants, then troubled Deutsche Bank and Commerzbank may be headed down the aisle — but observers say it is hardly a match made in heaven.

The share prices of Germany’s two largest banks briefly soared Wednesday on media reports that the finance ministry was scrutinising a possible tie-up.

The lenders, both grappling with painful restructurings after years of falling profits, have long been the subject of merger rumours.

In August, Finance Minister Olaf Scholz, who has repeatedly called for a German banking champion, said it was “a problem” that the country’s big banks had fallen behind their rivals on the global stage.

Speculation about their future intensified again after the finance ministry revealed it held 23 meetings or telephone talks with Deutsche Bank officials between May and December last year to discuss “strategic options”.

The German government — which still holds a 15-per cent stake in Commerzbank after bailing it out during the financial crisis — “is open to economically sensible options,” the ministry wrote in a letter responding to a parliamentary question from the Greens party.

A Frankfurt banking source with close ties to the public sector, told AFP that Berlin clearly wanted to avoid the banks, whose low valuations have made them takeover targets, “falling into the hands of a foreign player”.

‘On crutches’

Once mighty Deutsche Bank, weighed down by costly legal woes and an underperforming investment bank, has seen its stock plummet over the years, recently hitting lows of less than seven euros per share.

Commerzbank, in the throes of a digitalisation drive and a costly bid to win new retail banking clients, tumbled out of Germany’s prestigious DAX 30 index in September. Its share price has at times fallen below six euros.

If the pair did tie the knot, it would create a banking behemoth with some €2.0 trillion in assets, on a par with France’s largest bank BNP Paribas.

Their joint customer base could in theory allow the combined group to become a significant retail banking player in Germany while giving it a springboard internationally, building on Deutsche’s corporate and asset management units.

But the long-mooted union does not have everyone’s blessing.

German banking regulator Bafin, while not seeing any fundamental hurdles to a merger, is understood to favour either maintaining the status quo or a tie-up with a non-German bank.

The watchdog believes that Deutsche and Commerzbank’s current weaknesses, in terms of performance and capital buffers, would prevent them from reaping the full benefits of a merger, sources told AFP.

“Putting two guys on crutches together doesn’t make a sprinter,” quipped Markus Kienle of SdK, an association representing small retail shareholders.

European solution

The European Central Bank meanwhile has signalled it would prefer a European solution to the German banks’ woes.

More cross-border consolidation would “help get the banking sector back in shape”, the ECB’s then-top banking supervisor Daniele Nouy said last year.

“It would also put European banks in a better position to serve large European companies and to compete successfully with other global financial actors,” she added.

Deutsche and Commerzbank executives themselves have so far rubbished suggestions that wedding bells are in the air.

A merger is “neither necessary nor relevant” right now, even if things “could change in a year or two”, said a source representing a large Deutsche Bank shareholder.

Any potential tie-up would have to overcome a slew of hurdles. From the headache of marrying the two firms’ IT systems to dealing with unions and cultural differences between the lenders, and the potential market challenges of recapitalising a giant with feet of clay.

Combining the banks would be a Herculean task that would take time — “which these banks don’t have in a sector in the throes of transformation”, said Independent Research analyst Markus Riesselmann. — AFP

Related Articles