Breaking News
Investing Pro 0
Cyber Monday Extended SALE: Up to 60% OFF InvestingPro+ CLAIM OFFER

German ambitions evaporate as Deutsche Bank merger talks with Commerzbank collapse

Stock Markets Apr 25, 2019 09:36AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Deutsche Bank Head of Communications Eigendorf addresses the media in Frankfurt
 
INGA
-0.24%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DBKGn
+1.20%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
CBKG
+0.34%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Andreas Framke, Arno Schuetze and Tom Sims

FRANKFURT (Reuters) - German hopes of creating a national banking champion able to challenge global competitors were dashed on Thursday when Deutsche Bank (DE:DBKGn) and Commerzbank (DE:CBKG) ended merger talks due to the risks of doing a deal, restructuring costs and capital demands.

Germany's two largest banks announced that nearly six weeks of high-level negotiations about a tie-up had ended in failure, confirming an earlier Reuters report and immediately raising questions about the future of the Frankfurt-based rivals.

The decision to ditch the talks followed a final early morning meeting between Deutsche Bank Chief Executive Christian Sewing and his Commerzbank counterpart Martin Zielke, two sources told Reuters.

Both CEOs said a deal would not have created sufficient benefits to offset the risks and costs of a merger, which had been opposed by unions fearing 30,000 job losses, and raised concerns among investors and regulators.

While the talks are over, investors doubt either bank can go it alone for long under their current strategies given their low levels of profitability.

German government officials, led by Finance Minister Olaf Scholz, had pushed for a tie-up to create a national banking champion and end questions over the future of both banks, which have struggled to recover since the financial crisis.

Deutsche Bank's 2018 return on equity was just 0.4 percent, trailing far behind rival U.S., and increasingly other European, investment banks, while Zielke said this month that Commerzbank does not have the market share for costly investments, fuelling speculation of an alternative tie-up if talks fell through.

Shares in Commerzbank were 2.1 percent lower at 1235 GMT. Deutsche Bank traded 0.3 percent lower, erasing earlier gains.

Deutsche Bank will now face pressure to make more radical changes, such as cuts to its U.S. investment bank as advocated by regulators and some major investors. It is already looking at a deal for its asset management unit DWS.

"Deutsche Bank will continue to review all alternatives," Germany's largest bank said.

BIDDERS IN THE WINGS

Employees of both banks immediately welcomed the news, although a senior Commerzbank manager acknowledged it opened the door to further uncertainty as foreign competitors circle.

"It is clear that others will now come out of the woodwork with offers and ideas," the manager told Reuters.

Doing nothing is "not an option", Zielke has told his staff, 82 percent of whom were against a merger in an internal survey.

Both UniCredit and ING Groep (AS:INGA) have expressed interest in Commerzbank, which is Germany's No. 2 lender and 15 percent owned by the government, sources have said.

UniCredit and ING declined to comment after news that talks between Deutsche Bank and Commerzbank had failed.

Some major Deutsche Bank investors had questioned the deal's logic and were unwilling to stump up any extra cash to get it done, while credit ratings agencies had warned of risks.

The European Central Bank would have asked Deutsche Bank to raise fresh funds before it gave the go-ahead for a merger, a person with direct knowledge of the matter said. .

The German central bank, which helps oversee the banks, stressed their individual health, calling them sound and stable.

"This was the case prior to discussions, during discussions and now – without qualification," Bundesbank executive board member Joachim Wuermeling said.

Deutsche Bank also published preliminary earnings in which it said it expects to post a first-quarter net profit of about 200 million euros ($223 million), beating analysts' expectations of 29 million.

"A merger would have been an enormously complicated and protracted undertaking. In the end, reason has won," said Ingo Speich, head of sustainability and corporate governance at Deka Investment, a shareholder in both banks, adding they urgently need to address their strategies.

Alexandra Annecke, portfolio manager at Union Investment, which also holds shares in Deutsche Bank, said it needs to focus on increasing profitability, especially at its investment bank.

Deutsche Bank's finance chief James von Moltke told CNBC that the U.S. investment bank is "a core part of our strategy".

Gerhard Schick, finance activist at Finanzwende and a former member of the German parliament, welcomed the end of talks but cautioned that Deutsche Bank remains "too great a risk".

"The bank is still far too large and would probably have to be rescued in an emergency," he said, with reference to the likelihood of Deutsche Bank needing to turn to the state to keep it afloat if it ran into difficulty.

German ambitions evaporate as Deutsche Bank merger talks with Commerzbank collapse
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Dietmar Stahl
Dietmar Stahl Apr 25, 2019 3:22AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Where is the Competition if they merge. Should never be allowed.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email