Over the weekend the managements of both Deutsche Bank and Commerzbank confirmed that they are holding discussions concerning a possible merger of Germany two largest banks. This follows the wish of Germany's Finance Minister Olaf Scholz to create a "national champion" - a German flagship institution that can compete on the global stage with the giant US and China banking institutions. Certainly Scholz has a vested interest in such a merger, since the Federal Republic still has a 15% ownership stake in Commerzbank, a legacy of the Great Recession. On paper, a merger might make sense, since it would combine Deutsche's capabilities in trading and advisory services with Commerzbank's traditional strength as lender to Germany's Mittelstand. A German "champion" bank would be the defacto Hausbank for Germany's exporters:
For Berlin, combining the two would create a new national champion lender that could support the country’s huge export industry and compete for international business with the giant Wall Street banks. For the lenders, it offers the opportunity to gain financial scale, cut costs and combine technology.
Still, it's hard to see how combining two institutions that destroyed billions of euro in shareholder value over the past decade could be a success. Even with a combined $2 trillion in assets a DeutscheCommerz could not compete with the big US banks. Last year Commerzbank reported net earnings of €133 million, while DB lost €409 million. JPMorganChase, in contrast, had net earnings of $30.7 billion.
Most analysts are less than enthusiastic:
Das neu entstehende Institut - letztlich eine Viererbande aus Deutsche Bank, Commerzbank, Postbank und Dresdner - wäre ewig mit sich selbst beschäftigt. Noch mehr Kunden würden zur ausländischen Konkurrenz abwandern. Wo das nötige neue Kapital herkommen soll, ist völlig unklar. Ein überzeugendes Geschäftsmodell ist nicht in Sicht. An der nötigen Härte, die das Management beider Banken bräuchte, um die Fusion durchzuziehen, gibt es große Zweifel. Und auch die "Deutsche Commerz" wäre zu klein, um global eine wichtige Rolle zu spielen.
Any chance for the merger to work hinges on the ability to cut staff - something the trade unions in Germany will resist. The combined bank would have over 140,000 employees, half of whom work in Germany. It is projected that at least 40,000 in cuts would be needed to show the level of profitability required to attract new capital.
On the other hand, a merger might be the best last chance for Deutsche Bank. It is highly unlikely that any foreign bank would be interested in acquiring the scandal-ridden bank, especially since new scandals are likely to surface once the bank's dealings with the Trump organization are fully disclosed. It is hard to see how the once-proud Deutsche Bank can continue to limp along as an independent institution.
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