The possibility of merging Deutsche Bank AG and Commerzbank AG has won the backing of German officials who are seeking a new champion that would protect the nation’s economy from an exodus of foreign capital.
The government is in favor of a tie-up between its two biggest banks to create a heavyweight that would finance Germany’s export-oriented economy, according to people involved in the discussions. A merger could ensure credit remains open to German companies even during a financial slowdown when foreign investors might withdraw capital, the people said.
Germany is eyeing a domestic solution to prepare for the next slowdown -- and ensure its vast companies stay afloat -- as the European Union drags its feet on the banking and capital markets union many bank CEOs and regulators say the continent needs to kickstart more cross-border deals. While policymakers in Berlin are first looking at a German combination, they’re open to a wider merger with a European player outside the country once the banking, fiscal and capital-markets union is complete, the people said.
Deutsche Bank Chairman Paul Achleitner is said to have also discussed the option with German officials, though the bank is said to be wary of a deal because it’s still seeking to show that it can thrive on its own and still integrating its Postbank business. While the government is in favor of a deal, none of the people suggested Chancellor Angela Merkel’s government is actively pushing for a combination now.
Deutsche Bank is seeking to navigate its fourth strategic overhaul in three years, cutting thousands of jobs and paring back businesses in the U.S. and Asia. The bank ran through various merger scenarios at a strategy meeting in mid-September and decided the time isn’t right. It is wary that a Commerzbank tie-up would only lead to more staff cuts, while a European partner might open up bigger strategic possibilities, one person familiar said.
The competing options on the table mean that the banks remain in limbo, with their shares under pressure as investors question the viability of their long-term strategies. That skepticism about long-term strategy has put the performance of both at the bottom among European banks, with the shares of both lenders down more than 20 percent this year.
Finance Minister Olaf Scholz’s warnings about the state of Germany’s banks are gaining urgency along with his calls for European policy makers to complete a banking and capital markets union, which would open the door to more consolidation.
“We must complete the banking union now so we have instruments and options” in case another financial crisis strikes, Scholz said in a speech on September 14, echoing calls by Deutsche Bank Chief Executive Officer Christian Sewing and European Central Bank President Mario Draghi.
‘We Are Wiser’
The merger speculation has occurred before. The two banks held talks in the summer of 2016, but decided then against a deal while they focused on restructuring their own businesses, a person with knowledge of the matter said at the time.
Contacts between the government and Deutsche Bank have increased since Sewing, a German with deep career roots at the lender, took the helm, the people said. The arrivals of Scholz, who took over from Wolfgang Schaeuble in March, and his deputy Joerg Kukies, Goldman Sachs’s former head in Germany, are also said to be helping.
With a stake of more than 15 per cent in Commerzbank dating back to the financial crisis a decade ago, Germany’s government has a direct interest in the future of the country’s second-biggest lender. Though the government says it doesn’t intervene in private-sector decisions, any merger with Deutsche Bank is likely to require its approval.
For Scholz, the lessons of the crisis are clear: Strengthen banks when times are good. In a recent op-ed, he reminded Germans that the federal government put up more than 30 billion euros ($35 billion) to stabilize the financial industry since 2008.
“Today, we are wiser,” he wrote in Frankfurter Allgemeine Zeitung.