German bank merger crumbles as Deutsche Bank tie-up
talks with Commerzbank end
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[April 25, 2019]
By Andreas Framke, Arno Schuetze and Tom Sims
FRANKFURT (Reuters) - Deutsche Bank and
Commerzbank abandoned their merger talks on Thursday, with the risks of
doing a deal, restructuring costs and capital demands dashing efforts to
forge a German mega-bank.
After nearly six weeks of talks, Germany's two largest banks announced
that their high-level negotiations about a tie-up had ended, confirming
an earlier Reuters report and raising questions about the future of the
The announcement followed a final in-person meeting early on Thursday
between Deutsche Bank Chief Executive Christian Sewing and his
Commerzbank counterpart Martin Zielke, two people said.
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
While the talks are over, investors doubt either bank can go it alone
for long 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 1005 GMT, while Deutsche
Bank's were up 3.6 percent.
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.
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The Deutsche Bank headquarters are pictured in Frankfurt, Germany,
April 25, 2019. REUTERS/Ralph Orlowski
"It is clear that others will now come out of the woodwork with offers and
ideas," the manager told Reuters.
Commerzbank's chief executive Martin Zielke, has told employees that doing
nothing was "not an option".
Both UniCredit and ING Groep have expressed interest in Commerzbank, which is
Germany's No. 2 lender and 15 percent owned by the government, sources have
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 step up with 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
And the ECB's single supervisory board, which is scheduled to meet on Thursday,
had not received a formal application from the banks about a merger, another
source had said.
Deutsche Bank on Thursday 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.
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.
(Reporting by Hans Seidenstuecker, Andreas Framke, Arno Schuetze, Tom Sims,
Francesco Canepa, Frank Siebelt; Additional reporting by Toby Sterling in
Amsterdam and Gianluca Semeraro in Milan; Editing by Sabine Wollrab, Tassilo
Hummel, Michelle Martin and Alexander Smith)
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