Deutsche Bank and Commerzbank share prices rose this week after reports of a potential merger of Germany’s two biggest lenders. But although the CEOs of both banks are in agreement over the need for consolidation among German lenders to help bolster profitability across the industry, any merger remains a long way off, according to the reports.
Thinking the unthinkableLaura Board of
TheStreet quotes
Manager Magazin, the German weekly news publication that broke the story about a potential merger, which reported that Deutsche Bank is “moving towards until now unthinkable options with regards to its difficult situation” as its CEO, John Cryan, overhauls the bank.
“The German publication said that the country’s leading lender has attempted to ‘fathom ... whether a merger with Commerzbank could possibly make sense’ and has held ‘theoretical’ and ‘very early stage’ considerations about a transaction.”
Board writes that at a European banking summit in Frankfurt this week, Cryan said the European banking sector was overbanked and struggling with thin margins. “Mergers are necessary to allow European banks to compete internationally,” he said, although he thought a tie-up with Commerzbank was “not an option at the moment”.
TheStreet article
Too many banksCryan’s comments at the conference also dominated a
Reuters report by Arno Schuetze and Jonathan Gould, in which they highlighted his criticism of what he called the “scattered regionalism among banks”.
“We need more mergers, at a national level, but even also across national borders,” said Cryan, who sees “the sector's fragmentation as placing an unacceptable squeeze on bank profits and long-term sustainability”. “This situation in Europe cannot go on,” he said. “We need a strategy for our financial sector.”
€6.8bn
The loss posted by Deutsche Bank in 2015
According to Schuetze and Gould, his remarks – along with Commerzbank CEO Martin Zielke voicing his agreement at the conference that Germany is burdened by too many banks – will likely spur further discussion about the future of Deutsche Bank.
The Reuters piece notes that both Deutsche Bank and Commerzbank have been slipping down the rankings of the continent's top banks, hamstrung by a fragmented and competitive home market, growing regulation and negative interest rates.
The article quotes Neil Wilson, Market Analyst at ETX Capital: “Deutsche is a very juicy takeover target. It trades at about a quarter of book value and its shares are now worth a tenth what they were in 2007. In the last year its shares have halved in value, while it posted a €6.8bn loss for 2015 – low-hanging fruit for those who can reach.”
Reuters report
Regulator concernsDespite these market conditions,
Bloomberg’s Jan-Henrik Foerster pours cold water on the prospect of an imminent marriage between Deutsche Bank and Commerzbank.
Foerster quotes Chris Wheeler, a London-based analyst at Atlantic Equities, who said: “I don’t think Deutsche Bank and Commerzbank will merge – that’s too big a deal. I don’t think regulators would be comfortable for a whole host of reasons.”
Wheeler thinks a deal involving Deutsche Bank’s Germany Postbank consumer division is more likely. The bank has put a planned initial public offering of the division on hold, citing market conditions as one of the reasons. However Wheeler insists: “Deutsche Bank still wants to dispose of Postbank. Maybe there could be a deal with Commerzbank which is more skewed toward retail banking.”
Whatever the rest of 2017 holds for the two German banking giants, it’s unlikely the rumours surrounding potential mergers and acquisitions will go away any time soon.
Bloomberg piece
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