Deutsche Bank AG said it’s in talks with Commerzbank AG as part of a review of its strategic options, moving closer to creating a national champion lender as both banks struggle to grow.
The lender confirmed it is “engaging” in talks with Commerzbank as it seeks to boost growth and profitability. Bloomberg first reported that the banks’ boards were meeting on Sunday to approve formal talks, after the government signaled it wouldn’t stand in the way of job and cost cuts. The bank said there’s no certainty any transaction will occur.
The decision takes the German banks a step closer to a historic deal that would create Europe’s fourth-largest lender by assets and help fend off potentially hostile suitors. It caps months of deal speculation and behind-the-scenes discussions with the government about the best ways to stabilize Germany’s largest listed lenders, which have struggled to restore revenue growth after deep cuts to their investment banking units and are now encountering an economic slowdown.
Labour representatives on Deutsche Bank’s supervisory board have said they oppose a merger, arguing a combination would fail to achieve the goal of strengthening the bank while resulting in massive staff cuts. As many as 30,000 positions could be at risk if a deal were agreed, according to people familiar with the matter.
The Finance Ministry is favoring a deal to ensure the country has a lender with global reach to support the export-driven economy, people familiar with the matter have said. The country still owns a large stake in Commerzbank after a bailout.
While it’s not clear yet how a merger would be structured, Deutsche Bank would have to raise about 8 billion euros from shareholders or through sales of holdings such as its DWS Group asset management business, according to an estimate by Christian Koch, a DZ Bank analyst. Allianz SE has shown interest in DWS and is exploring the possibility of combining it with its own asset management arm, according to people familiar with the matter.
The two companies previously discussed a merger in the summer of 2016. Both Commerzbank Chief Executive Officer Martin Zielke and Deutsche Bank CEO Christian Sewing were part of those discussions, though Sewing was head of the retail division at the time. The talks fell apart and the lenders embarked on their respective restructurings.
Almost three years later, their turnaround plans are sputtering. Commerzbank has dropped most of its 2020 financial targets after cutting
its revenue outlook. Within Deutsche Bank, doubts are growing that it will be able to reach its goals. Sewing, tapped a year ago as CEO with a mandate to accelerate restructuring efforts, has recently given up his resistance to pursuing bolder steps, people familiar with the matter have said.
Deutsche Bank in February reaffirmed its 2019 profitability target but also made clear that it would need to implement tougher measures if markets don’t play along and revenue continues to decline. January was a terrible month for the trading business though February has seen improving conditions, the people have said.
For Deutsche Bank, the urgency to address the situation is exacerbated by high funding costs and the risk of a credit rating cut.
Chairman Paul Achleitner is said to see an expansion of Deutsche Bank’s retail deposit base — which Commerzbank would bring — as one way to lower funding costs.