Deutsche Bank headquarters in Frankfurt are shown late last year. Photograph by Thomas Lohnes/Getty ImagesText size
According to Handelsblatt, German officials have taken a keen interest in the possible combination of late, as shown by the fact that Deutsche executives and German government officials met no less than 23 times last year. As always, the question about this long-mooted merger is two-fold: Why? And why now?
The answer to both is harder today because the story has shifted of late. It started a couple of years ago as a quest for a possible acquirer of the 16% stake in Commerzbank held by the German government. These days, it looks more like an attempt at a Deutsche Bank rescue.
Neither bank immediately responded to a request for comment.
Commerzbank benefited from a large-scale German government bailout in 2008 and 2009. Over the years, Spain’s Santander (SAN.Spain), France’sSociété Générale (GLE.France), and BNP Paribas (BNP.France), Italy’sUnicredit (UCG.Italy) or Swiss UBS (UBS) were mentioned alongside Deutsche Bank as potential buyers of the resulting government stake.
Berlin, however, never hid its preference for the potential creation of a private national champion in a country with a large but challenged public banking sector.
Germany’s problem now is less to find an acquirer for the Commerzbank stake than to take care of Deutsche Bank. After a string of bad business news in the last year, the bank, humbled by its rapid expansion into investment banking abroad, is now the target of a major money-laundering and tax-evasion probe.
The CEO appointed last year, Christian Sewing, is in the middle of a turnaround plan he says is beginning to bear fruit. But the group has lost money three years in a row and is trading at less than a fourth of its book value. Even though it can hope for better market conditions for its investment-banking business in the months to come, a merger with Commerzbank, from the German government’s viewpoint, would help avoid a takeover by a foreign competitor.
According to Handelsblatt, the European Central Bank, which supervises the eurozone’s largest banks, would instead favour a combination with another European lender. Meanwhile rumors of a combination with UBS are resurfacing, although the respective size of the two banks (UBS’s market capitalization is nearly three times that of Deutsche.) would make it more an outright, humbling acquisition by the Swiss group than a merger. In any case UBS chairman Axel Weber, who once headed the German central bank, earlier this year said it would “make little sense to consider mergers now” since “they paralyse companies for years.”
It’s easy to see how a strictly German deal would appeal to the government, which is eager to shore up the country’s somewhat archaic banking sector. It may notably help paper over the €3 billion-plus loss a government so keen on fiscal rectitude would have to take on its Commerzbank stake at current market prices.
And German plans may be favored by the fact that potential European buyers are currently busy enough with their own problems. SocGen this week issued a warning on its investment-banking revenue, Unicredit’s own turnaround is challenged by financial markets’ concerns about the Italian government’s economic policies, and Santander is still looking for a chief executive.
That leaves BNP Paribas, which makes no mystery of its ambition to expand in the German retail market and become a player as a lender to the many small and medium-size companies that form the Mittelstand, the backbone of Europe’s strongest economy. It probably wouldn’t be interested in Deutsche Bank’s troubled investment bank, but may consider taking over the Postal service’s banking operation, which Deutsche acquired ten years ago.
Whatever the end game, Deutsche boss Sewing is likely to keep insisting that it wouldn’t make sense to enter serious merger or acquisition talks before he has a chance to prove his strategy right. Meanwhile don’t expect the rumors to end anytime soon.