Sat, Apr 06, 2019 - Page 10 News List

Merger would add much-needed scale: Commerzbank CEO

Bloomberg

Commerzbank AG chief executive Martin Zielke, almost three weeks into formal discussions about a combination with Deutsche Bank AG, has told employees that a deal could help the bank get the scale for necessary investments to pay off.

“Organic growth has one disadvantage: you need time to substantially increase your market share,” Zielke wrote in a memo seen by Bloomberg. “That’s why we are also currently looking at alternative options for growth.”

The comments, days before Commerzbank is expected to decide on whether to intensify the talks or break them off, are the clearest indication yet of Zielke’s thinking.

The two banks are leaning toward proceeding with the discussions and are close to a consensus on the rough outlines of a potential deal, people briefed on the discussions said.

While Commerzbank’s strategy of aggressive client acquisitions was working, low interest rates were creating pressure on profits with no end in sight, Zielke said in a memo.

At the same time, regulatory expenses had increased, and clients were demanding quick and digital banking solutions, he wrote.

The memo is at least the second Zielke sent to staff since formal talks with Deutsche Bank began.

Many employees have expressed their discomfort with the idea, he said in the first one.

A labor representative criticized the move and unions called on staff to use warning strikes scheduled as part of wage negotiations to protest against the proposed merger.

“What you should take away with you: the alternative of doing nothing is not an option,” Zielke wrote. “We will take further steps in order to increase our growth and our profitability. At the end the question will be whether a potential tie-up makes strategic and economic sense, and what such a model could look like.”

A Commerzbank spokesman declined to comment on the memo.

Since formal talks started last month, the banks have been in daily contact, people with knowledge of the discussions said.

Zielke in particular has been pushing for a quick decision, one person said.

Commerzbank’s biggest shareholder is the German government.

The German Ministry of Finance, which oversees the stake, has encouraged a deal, though other lawmakers have signaled opposition.

Zielke in the memo acknowledged that the government had an interest in having a financial institution big enough to support the needs of the economy, while denying that the talks were driven by politics.

“Political interests have played no role in our decisionmaking progress,” he wrote. “We are assessing what makes strategic and economic sense for our employees, customers and shareholders.”

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