After nearly six weeks of negotiations on a potential merger that would have created the eurozone’s second-biggest bank after HSBC, Deutsche Bank and Commerzbank have decided against a union.
According to reports, Germany’s two biggest banks concluded that the risks and costs resulting from merging were too great.
Unions had also opposed any deal, which could have resulted in up to 30,000 jobs being cut, while some analysts questioned whether a combined Deutsche-Commerzbank would create synergies or simply be a bigger bank with the same problems.
Both banks similarly agreed that pooling their resources would not have created sufficient benefits to offset the associated risks, restructuring costs and additional capital requirements, although German finance minister, Olaf Scholz and other government ministers were keen for a tie-up to create a national banking champion to rival the UK’s HSBC and France’s BNP Paribas.
Reviewing all alternatives
According to reports, the European Central Bank (ECB) would have required Deutsche Bank to raise additional funds before giving its consent to a merger with Commerzbank.
“Deutsche Bank will continue to review all alternatives,” the bank announced. One possibility could be cuts to its US investment bank, a move being promoted by regulators and some major investors.
The end of the merger talks could now see alternative bidders emerge. “Others will now come out of the woodwork with offers and ideas,” a Commerzbank executive told Reuters. Italy’s UniCredit and Dutch group ING are reported to have expressed interest in Commerzbank, but have so far declined to comment.
Commerzbank’s CEO, Martin Zielke has stressed that taking no action is “not an option”, although an internal survey found that 82% of his staff were against a merger with the bank’s bigger rival.
Deutsche Bank’s problems were reflected in its results for Q1 of 2019, released shortly after it announced the termination of merger talks. While Q1 net income was 48% higher at €178 million, net revenue was 9% lower at €6.4 billion, marking the ninth consecutive quarter of contraction. Deutsche Bank now expects business to be flat this year, after previously targeting a slight increase.
Commenting on the end of the talks, the New York Times observed: “Europe has too many banks for too few customers, and marginally profitable lenders are a source of economic weakness. For all its flaws, the failed quest to merge Deutsche Bank and Commerzbank was an attempt to attack that fundamental problem.”
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