Deciding that their merger would have been too risky to pull off, talks of a merger has been abandoned by Deutsche Bank and Commerzbank.
“Sufficient benefits” would have been generated by the deal which would have offset the expenses for the deal, said both banks.
The two German banks had started merger negotiations only last month.
The merger had been supported by the German government and according to a reports, a national champion in the banking industry was desired by Germanys Finance Minister Olaf Sholz.
A 15.5 per cent stake in Commerzbank is still held by the German government originating from the bail out of the bank after the financial crisis. Many analysts viewed the potential merger as a means of turning the fortunes of both the banks.
If a merger went through, the new combined entity would have had a combined €1.8 trillion ($2tn) of assets, such as loans and investments which would have given it one fifth of the total market share of Germany’s High Street banking business.\
Additional risks and costs would have been created by the merger deal, Deutsche Bank said in a statement, and added that those risks would not have been offset by he perceived benefits of the merger.
“Deutsche Bank will continue to review all alternatives to improve long-term profitability and shareholder returns,” it said.
It had “made sense” to consider the deal, said Commerzbank chief executive Martin Zielke. But toeing a similar line as Deutsche Bank it concluded that the potential benefits did not justify the extra costs and risk.
Deutsche Bank has been struggling to generate growth and has been hampered by losses at its US investment banking operations.
Growth has also been an issue for Commerzbank.
Economic slowdown in Germany and in the eurozone has affected both the banks. One large bank with problems would have been the only major outcome by the merger of the two struggling banks, critics of the tie-up said. The workers’ unions also opposed the deal because of fears of job losses for more than 10,000 employees of the two banks combined.
According to analysts at investment bank Keefe, Bruyette & Woods, Deutsche Bank’s multiple efforts to reorganise its business have “stalled”. Poor economic environment, rising costs for funding and “disillusioned clients and employees” was being faced by the bank, it said. “Unlike peers, Deutsche Bank does not have the luxury to fall back on large, profitable parts of its business to help offset struggles elsewhere,” their report said.
Further cuts to its international operations should be made by Deutsche Bank, the analysts said.
A preview of its first quarter results, which are due on Friday, was released by Deutsche Bank to help dispel the gloom. According to that release, the bank has managed to beat estimates of analysts in terms of net income and will report a net income of €200m.
According to Sascha Steffen, Professor of Finance at Frankfurt School of Finance and Management, the eurozone banking industry is in a “fragile state”. After the financial crisis, efforts to rebuild banks’ balance sheets have been “insufficient” and banks remain “vastly under-capitalised” he argued.
(Adapted from BBC.com)