Deutsche and Commerzbank boards explore merger talks

Deutsche and Commerzbank boards explore merger talks

The management boards of Deutsche Bank and Commerzbank are meeting separately to decide whether to start exploratory merger talks.

The meetings were called after the German government signalled over the weekend that it would support the restructuring needed to turn a tie-up of Germany’s two largest listed lenders into a success.

Three people familiar with the discussions told the Financial Times that the management board meetings were convened on very short notice, and that a formal statements of the banks is to be expected later on Sunday.

One person briefed on the matter said that the exploratory talks “won’t be over in a week” but that he expects protracted negotiations over a deal that would create the eurozone’s second-largest lender after BNP Paribas with €1.9tn in joined assets and more than 140,000 employees.

Analysts expect that at least 20,000 jobs would have to be cut in a merger, which unions in Germany oppose.

According to a senior member of Germany’s government, Berlin’s main goal is that the country’s largest banks address their chronic problems to bloated costs and measly returns on equity.

“A merger [of Deutsche Bank and Commerzbank] could be one of several options to do so,” this person told the Financial Times, adding that the government was not “pushing” the two banks into a deal.

Deutsche Bank had informed large shareholder over the weekend about Sunday’s board meeting, a person close to one top-five investor told the FT, adding that that shareholder was still not entirely convinced about the merits of a tie-up with Commerzbank but willing to back a deal under the right circumstances. “This must be driven by compelling business arguments, not by political ones,” the person said.

So far, the only large Deutsche Bank shareholder backing a merger was Cerberus, which besides its 3 per cent stake in Germany’s largest lender also holds a 5 per cent stake in Commerzbank.

Deutsche Bank chief executive Christian Sewing in mid-February dropped his opposition to exploring a multibillion-euro merger with its smaller rival and asked the management board for a formal mandate to informally sound out options.

Commerzbank chief executive Martin Zielke sees the deal as one of the very few realitic options for consolidation, as a cross-border deal involving another European lender faced high regulatory and political hurdles, according to people briefed on his thoughts. However Mr Zielke would insist on several key preconditions before backing a merger.

Future cuts to Deutsche Bank’s ailing investment bank could prove as one sticking point. “[A merger] is a once-in-a-lifetime opportunity to put everything unter scrutiny,” a person familiar with the Commerzbank chief executive’s thoughts told the Financial Times, adding that this process should lead to the closure of more loss-making investment banking activities. In the decade after the financial crisis, Commerzbank almost entirely got rid of its own investment banking activities.

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