weeks of rumour, a progress report was due. Deutsche Bank, Germany’s biggest bank, had promised investors an update on merger discussions with its Frankfurt neighbour, Commerzbank, on April 26th, alongside its first-quarter earnings. The update came, unplanned, a day early. On April 25th the two banks said they had called off the talks, the announcement prompted by a Reuters report that negotiations were about to fail.
The pair said that a deal would not justify the “additional execution risks, restructuring costs and capital requirements associated with such a large-scale integration”. Outside the two banks and the German government, Commerzbank’s biggest shareholder with a 15% stake, plenty had reached that conclusion even before the banks said in mid-March that talks were under way and embarked on weeks of negotiation. Two troubled lenders looked unlikely to make one strong one.
So what was the logic of a merger? There was some, if never enough. It would have created Germany’s biggest retail bank by some distance, with about a fifth of deposits in a highly fragmented market. It might have forced a faster digitisation of German retail banking, including branch closures—loudly opposed by trade unions at both banks while the talks were under way. Commerzbank’s deposit base would have brought Deutsche cheaper and more stable funding.
For the government, one attraction of a merger was that Commerzbank would then be sure not to fall into the hands of one of the foreign suitors with which it has been repeatedly linked. Even in the past few weeks, reports have surfaced of interest from Italy’s UniCredit, which already owns, of the Netherlands, which already has a successful branchless retail bank in Germany.
With Deutsche ruled out, such rumours are unlikely to go away. Ironically, the failed talks may, through a bid for Commerzbank, hasten a cross-border deal. Deutsche’s situation is as dismal as ever. In a preview of its first-quarter earnings with the announcement that talks had failed, it said it had made only a puny €200m or so in net profit, with corporate and investment-banking revenues down on a year earlier. Put away the drawing board, and get back to the building site.
Deutsche Bank is a toxic liability heading for bankruptcy without a “white knight!” But nobody is interested or crazy enough to assume unlimited legal liability of its past endeavours!
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