Germany’s two biggest lenders Deutsche Bank and Commerzbank are in talks over a possible multibillion-euro merger as they look to turn around their fortunes.
The merger would bring together two banks that have struggled in recent years to create the second-biggest lender in the eurozone and may result in job losses.
“In the context of reviewing strategic options, we are engaging in discussions with Commerzbank,” Deutsche Bank’s boss Christian Sewing said in a letter to staff over the weekend, cautioning that there is no certainty that any deal will go ahead.
Mr Sewing said the bank “will only pursue options that make economic sense, building on the progress we made in 2018” and that “experience has shown that there may be a lot of potential economic and technical factors that could hinder or prevent such a step”.
Deutsche Bank has been cutting costs and updating its IT systems but has struggled to maintain profitability since the financial crisis.
Commerzbank was bailed out during the financial crisis and the German government, which holds a 15% stake in the lender, has signalled that it would back the deal.
Politicians in Germany have been concerned about the weakness of its banking sector, particularly Deutsche Bank.
Michael Hewson, chief market analyst at CMC Markets, said although there is opposition to the merger due to fears of thousands of job losses, the biggest obstacle is likely to be around the valuation of the banks’ assets and liabilities.
“Due diligence may well be an old-fashioned concept to some politicians, but it is something that investors have learnt to pay attention to in the last few years, given recent mergers which turned out to be disastrous,” Mr Hewson said, pointing to Royal Bank of Scotland’s takeover of ABN Amro and Lloyds Bank’s acquisition of HBOS.
“That’s even before we look at Deutsche’s history and the fact that nine years on from its Postbank acquisition, it still hasn’t fully decided on how the bank fits into its overall business model, with constant on/off speculation as to whether it should be sold off,” he said.