Merger talks between Deutsche Bank and rival Commerzbank have fallen apart

Both banks have faced pressure from the German government
April 25, 2019 09:00AM

Deutsche Bank Chairman Paul Achleitner and German Finance Minister Olaf Scholz (Credit: Getty Images)

Deutsche Bank Chairman Paul Achleitner and German Finance Minister Olaf Scholz (Credit: Getty Images)

Deutsche Bank and Commerzbank AG have ended merger talks, dashing the German government’s hopes for creating a domestic banking giant.

The CEO and chairmen of both banks met to finalize the decision on Thursday, the Wall Street Journal reported. Deutsche Bank had been considering backing out due to the costs and complexities of combining the two companies — as well as the challenges of selling shareholders on the deal.

Deutsche Bank said, a merger “would not have created sufficient benefits to offset the additional execution risks, restructuring costs and capital requirements.”

Meanwhile, Commerzbank had become impatient with the pace of discussions, the report said.

“After careful analysis it became apparent that such a combination would not be in the interests of either bank’s shareholders or other stakeholders,” Commerzbank said.

Shareholders include the German government, which has a roughly 15 percent stake in Commerzbank. German Finance Minister Olaf Scholz had pushed for the talks. On Thursday, he said, “Such cooperation only makes sense when there is a commercial gain from it and when it guarantees a solid business model.”

As this deal falls apart, it’s likely to draw M&A interest from other competitors. Such a move would be the biggest reshuffling of European banking assets since the financial crisis. The banks announced formal talks last month. Both firms have been facing pressure from investors and the German government amid years of declining performance and overhauls.

Commerzbank is seen by many investors as the more stable of the two. Since 2016, it has cut staff and focused on deposit-taking and commercial lending. That move has helped the bank increase its customer base and loan volume for German midsize companies.

Deutsche Bank, on the other hand, is more dependent on trading and investment banking businesses. In the U.S., it has lost market share to rivals and has faced higher funding costs. Indicative of investor skepticism, its stock price trades at just a third of its stated book value.

In New York, Deutsche continues to lend out hundreds of millions of dollars to New York real estate developers. In November, it provided Macklowe Properties $750 million in construction financing for for One Wall Street’s office-to-residential conversion. Over the past few years, the bank has originated many of the largest commercial real estate loans in the city. [WSJ] — Meenal Vamburkar