Deutsche Bank begins talks over merger with rival Commerzbank

Union would form Europe’s second largest bank and a rival to HSBC

Deutsche Bank

Photograph: Daniel Roland/AFP/Getty Images
Deutsche Bank as been plagued by three years of losses, and its role as the biggest lender to the Trump business empire. 

Deutsche Bank has begun tentative merger talks with rival Commerzbank, which would create Europe’s second biggest bank behind HSBC and fend off unwanted potential bidders such as French giant BNP Paribas.

Reports in Germany’s Welt am Sonntag suggest that the banks have come under political pressure to consider a merger and avert a foreign takeover of Commerzbank, much the smaller partner in any deal.

Deutsche is regarded as a bank of global importance, but has been plagued by three years of losses, boardroom battlesmoney laundering issues and its role as the biggest lender to the Trump business empire.

Despite Germany’s industrial dominance in Europe, it has only one bank in the continent’s top 20, and Berlin is understood to be keen to create a larger national champion. The combination of the two banks mean that Deutsche, currently fifth biggest, and Commerzbank, currently 23rd, will become Europe’s second biggest bank and only marginally behind HSBC.

Deutsche Bank’s chief executive Christian Sewing was seen to be the main opponent of a merger, but investor pressure – Deutsche’ shares are trading at around €7.68 compared with €32 five years ago – is understood to have forced his hand.

The talks are believed to be at a very early stage – “unofficial contacts in a very small group” according to Welt am Sonntag – but are likely to be welcomed by major shareholders.

Cerberus, the US private equity group that is one of the biggest shareholders in both Deutsche Bank and Commerzbank, is reportedly keen on a merger, while Deutsche Bank’s chairman Paul Achleitner is also said to be open to the idea.

Resistance to a merger may come from Commerzbank, according to Reuters. Commerzbank has largely shed itself of its investment banking activities and become a simpler and more stable retail and corporate lender. But Deutsche remains a significant investment bank player with huge, loss-making trading activities. The Wall Street Journal reported last week that Deutsche lost $750m (£576m) in equity trading in New York alone during 2018.

There are also question marks over how much of a premium Deutsche could offer Commerzbank shareholders. If the bank stumps up more than €10bn, or a third over Commerzbank’s current share price, then it would send the banks core financial ratios below target.