Deutsche Bank AG, Europe’s once-dominant financial institution, threw in the towel on years of failed turnaround efforts and agreed to begin government-backed merger talks with Commerzbank AG.
By bowing to officials’ desire to forge a durable German lender with global reach out of two troubled firms, Deutsche Bank’s leaders are hardly putting their woes behind them: Massive job cuts, political turbulence, a weakening European economy, US probes into its dealings with US President Donald Trump and a herculean integration — not to mention skeptical clients and investors — lie ahead if they reach a deal.
“I have consistently stressed that consolidation in the German and European banking sector is an important topic for us,” Deutsche Bank chief executive officer Christian Sewing said in a letter to employees. “We have to assess how we want to play a part in shaping it.”
The companies confirmed the move to deeper discussions in statements on Sunday, capping months of speculation and behind-the-scenes talks with the German Ministry of Finance.
Both firms have struggled to restore revenue growth after deep cuts to their investment banking units. An economic slowdown that has pushed back expectations for higher interest rates has added urgency to the situation.
The ministry in an e-mailed statement said that it “notes” the decision of the banks to start open-ended talks and that it is in “regular contact” with all parties involved.
German Minister of Finance Olaf Scholz and German Deputy Minister of Finance Joerg Kukies have been favoring a deal to ensure the country has a lender to support the export-driven economy, people familiar with the matter have said.
Germany still owns a large stake in Commerzbank after a bailout.
The trade union for bank employees opposes a merger “in view of the risk to tens of thousands of jobs,” Jan Duscheck, who sits on Deutsche Bank’s supervisory board as labor representative, said in an e-mailed statement.
As many as 30,000 positions could be at risk in a merger, people familiar with the matter said.
The banks agreed to start formal talks after the government signaled that it would not stand in the way of necessary job and cost cuts, the people said.
Deutsche Bank expects to spend the next month in negotiations, said a person briefed on the talks.
A tie-up of the two 149-year-old firms would create Europe’s fourth-largest lender with assets of about 1.81 trillion euros (US$2.05 trillion).
The banks have a combined market value of about 25 billion euros, comparatively small because of the long slide in the shares. Both companies have lost more than 90 percent of their value from their peaks.
While it is not clear how a merger would be structured, Deutsche Bank is the larger of the two and would probably be the acquirer.
If a deal goes ahead, it might need to raise about 8 billion euros from shareholders or through sales of holdings, such as its DWS Group asset management business, DZ Bank analyst Christian Koch said.
“We will only pursue options that make economic sense, building on the progress we made in 2018,” Sewing said in his letter. “Our stated aim remains to be a global bank with a strong capital markets business — based on a leading position in our home market in Germany and in Europe, and with a global network.”
Proponents of a deal have said it would help the firms cut cost by eliminating branches and thousands of jobs, while pooling investment in information technology.
Critics have said a merger would lock both companies into several more years of restructuring, with high execution risks, and does not fix the real problems at Deutsche Bank’s securities unit.
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