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Deutsche Bank, Commerzbank shares soar amid merger talks confirmation

posted onMarch 18, 2019

Deutsche Bank and Commerzbank surged Monday morning after Germany's two biggest lenders confirmed they are in discussions to potential merge. Shares in the two banks rose by 3.3 and 4 percent respectively at 0829 GMT.

“We confirm that we are engaging in discussions with Commerzbank” Deutsche Bank said. "Commerzbank and Deutsche Bank have agreed today to start discussions with an open outcome on a potential merger," Commerzbank said in a brief statement.

"Consolidation in the German and European banking sector is an important topic for us. We have to assess how we want to play a part in shaping it,"  Christian Sewing, a retail banking veteran who took over as CEO of Deutsche Bank last year, wrote to staff on Sunday.

“At this point in time, there is no certainty at all that any transaction will materialise. Experience has shown that there may be a lot of potential economic and technical factors that could hinder or prevent such a step” he added, cautioning  that talks may not lead to a successful merger. 

A merged bank would likely be the third largest in Europe after HSBC and BNP Paribas, with combined assets of €1.9 trillion ($2.2 trillion), a market value of about 25 billion euros and roughly 150,000 employees. 

(Graph: Price of Deutsche Bank shares traded on the Frankfurt Stock Exchange from 1990 to 2018 in euros)

price of Deutsche Bank share

The German government which holds a 15% stake in Commerzbank appears to favour the deal as it wants a national banking champion to support its export-led economy. 

The tie-up, however, will face fierce opposition from unions in Germany, as it could result in as many as 30,000 job cuts over the long term, according to a representative of German union Verdi who is a Deutsche supervisory board member. Most of the 30,000 positions at risk are based in Germany, Verdi’s Jan Duscheck told public n-tv broadcaster on Monday.

Other critics of the merger say that combining two troubled lenders would just create one large bank with problems. 

Deutsche Bank has been struggling to generate growth and  posted an annual profit last year for the first time since 2014. Commerzbank has also found it difficult to grow.

“We do not see a national champion here, but a shaky zombie bank that could lead to another billion-euro grave for the German state. Why should we take this risk? ” Reuters quoted Gerhard Schick, finance activist and ex-member of the German parliament as saying.

"Putting two guys on crutches together doesn't make a sprinter," Markus Kienle of SdK, an association representing small retail shareholders, told DW earlier this year. 

However, the initial market reaction was positive with Europe’s banking sector  up by nearly 1 percent on Monday morning.

The supervisory boards of the two Frankfurt-based banks meet on Thursday when the merger is likely to be discussed. 

UPDATE 25/04/2019

After more than five weeks of negotiations, Germany's top two lenders, Deutsche Bank and Commerzbank ended their talks about combining forces. Both say they've concluded the risks and costs would outweigh the benefits. 

Deutsche Bank, once Europe’s dominant financial institution, said it would continue to review “all alternatives to improve long-term profitability and shareholder returns.” 

The country’s biggest listed banks are currently in the process of restructuring and ratings agencies have warned of the risks of a tie-up.