Germany’s two largest banks – Commerzbank and Deutsche Bank – are once again exploring a potential merger, according to several reports this week. The impetus for reviving deal talks comes from the German government, which is said to be actively encouraging domestic banking consolidation.
Background of Previous Failed Merger Attempts
Commerzbank and Deutsche Bank previously discussed merging in 2019, but those talks collapsed due to concerns over costs, restructuring, and implementation risks.
At the time, labor unions opposed job cuts, while both banks struggled with low profits and existential questions around their business models. Deutsche Bank had gone through years of scandals and losses, while Commerzbank was part-owned by the German government after a bailout.
Here is a brief timeline of what happened:
| Date | Event |
|---|---|
| March 2019 | Commerzbank and Deutsche Bank confirm they are in formal merger talks |
| April 2019 | The banks abandon deal talks after failing to come to an agreement over synergies and costs |
| April 2021 | Commerzbank’s CEO resigns after failing to agree strategy with top shareholder German government |
| December 2021 | New Commerzbank CEO Manfred Knof unveils cost-cutting plan, including shutting hundreds of branches and cutting 10,000 jobs |
The failure of the 2019 merger talks left both banks in precarious positions. However, Commerzbank has been executing a restructuring strategy under its new CEO Manfred Knof. Meanwhile, Deutsche Bank has also been stabilizing its business.
Germany Pushes for Banking Consolidation
Now in 2024, Germany’s ruling coalition is once again applying pressure for Commerzbank and Deutsche Bank to explore a merger, according to reports.
The government aims to create a larger, more competitive national banking champion. It currently holds a 15% stake in Commerzbank leftover from the 2008 financial crisis bailout.
Chancellor Olaf Scholz’s administration is also considering fully nationalizing Commerzbank to facilitate a merger. But the banks have resumed early-stage tie-up talks on their own initiative, sources said.
“It is looking more likely there will be a relaunch of merger talks,” said one insider at the Economy Ministry.
Germany’s push for domestic banking consolidation also includes encouraging other tie-ups, like between regional banks. The fragmented nature of Germany’s banking sector has long been a concern, leaving its banks small compared to European rivals.
Potential Synergies, But High Execution Risks
Analysts have mixed views on merger prospects between the partially state-owned Commerzbank and Deutsche Bank.
On paper, potential synergies exist – a merger could enhance scale, reduce duplicated costs, and increase market share.
But execution risks also remain high. Integrating two massive organizations with different cultures could prove highly complex and expensive.
Previous merger breakdowns have also left a residue of mistrust between the banks’ managers. And labor unions continue to worry about large job losses.
“The industrial logic points to mergers, but the technical problems that buried talks last time – particularly around implementing IT – are monumental,” said Klaus Nieding, vice president of shareholder lobby group DSW.
Nonetheless, bosses at both banks are under pressure to consider talks from their largest shareholder – the German government.
What Happens Next? Timeline and Implications
Commerzbank CEO Manfred Knof continues executing the bank’s current standalone strategy aiming to boost profits by 2024. But sources said management would engage constructively in any new merger discussions.
Deutsche Bank’s CEO Christian Sewing has been more reluctant about large bank mergers in recent years due to execution risks. But Chairman Alexander Wynaendts has expressed more openness to deals.
Here is a potential timeline if Commerzbank and Deutsche Bank revive merger talks:
| Date | Event |
|---|---|
| February 2024 | Banks re-enter formal due diligence and negotiations |
| May 2024 | Announcement of agreed merger terms |
| H2 2024 | Shareholder and regulatory approval |
| 2025 | Merger completion and integration |
A successful deal would create Europe’s second-largest bank behind BNP Paribas with combined assets of €1.7 trillion ($1.8 trillion).
The merged entity could dominate the German retail banking market with 24 million customers and 20% market share. Its corporate banking business would also be competitive regionally.
However, rivals like BNP, HSBC, and Santander would still dwarf the bank globally. And the merged bank could present a new systemic risk for Germany if its restructuring struggles.
So while German politicians dream of a national banking champion, Commerzbank and Deutsche Bank still face huge challenges reviving merger plans both politically and financially. Expect a long road ahead with an uncertain outcome if talks restart.
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