After years of speculation, Germany’s two biggest lenders, Deutsche Bank and Commerzbank, have formally decided to begin discussing a potential merger. The tie-up between the struggling banks could create a national banking champion—or just a larger struggling bank.
The banks announced the talks Sunday. “The management board of Deutsche Bank is focused on improving the growth profile and profitability of the bank. There is no certainty that any transaction will occur,” said Germany’s largest bank. “In this context we confirm that we are engaging in discussions with Commerzbank.” The smaller bank issued a very brief statement referring to “discussions with an open outcome on a potential merger.”
Here’s what you need to know about the path that got the banks to this point, and the concerns about what might happen next.
The impetus for these talks comes from the German government, which is worried about the downward trajectory of the two banks’ fortunes.
Both lenders still bear the scars of the financial crisis. Deutsche Bank was stung by crisis-related fines and settlements and is still trying to attempt a turnaround through cost-cutting measures. Meanwhile, Commerzbank, which required a German government bailout in 2009 in exchange for a large stake, is seen as a prime takeover target—and the government doesn’t want a foreign bank to swoop in and snap it up.
Finance Minister Olaf Scholz is keen on the creation of a German lender that can support the international expansion of the country’s industry—a combined bank would be in Europe’s top three, behind HSBC and BNP Paribas.
U.S. investor Cerberus, which has stakes in both Deutsche Bank and Commerzbank, also supports the potential merger.
What are the arguments against a merger?
The most immediate opposition comes from Germany’s Verdi union, which reckons around 30,000 jobs would be at risk, mostly in Germany. Combined, the two banks currently have around 133,000 workers around the world.
“In our opinion a possible merger would not result in a business model that is sustainable in the long term,” warned Jan Duscheck of Verdi, who is a member of Deutsche Bank’s supervisory board, according to Reuters.
Duscheck isn’t the only person who thinks the merger wouldn’t go as planned. Reuters also cited a “major Deutsche shareholder” that has “considerable doubts about the logic and timing.”
An advisor to the German finance ministry also said last month that there was no “economically plausible justification for a merger at the moment,” largely because Deutsche Bank had just reported its first full-year net profit since 2014. “One should give the bank and its management time to continue along this path,” said the advisor, Jörg Rocholl, who is the president of the European School of Management and Technology.
According to Reuters, Deutsche Bank’s own CEO, Christian Sewing, would like more time to right the ship before any merger—he’s been in the post for less than a year.
What happens next?
The two banks’ supervisory boards will reportedly meet on Thursday to discuss the potential merger.
In the meantime, the news of the formal talks has provided a big boost for both banks’ shares. Deutsche Bank’s shares are up 4%, Commerzbank’s are up by around 7%, and shares in DWS Group—the Deutsche Bank-controlled asset manager—rose by more than 9%.
DWS may, investors are speculating, be sold to finance the merger. Bloomberg reported Friday that Allianz is a potential buyer, with the aim of creating a “national champion in active money management.”