Profitability first ECB said to set terms for Deutsche-Commerzbank merger

European bank regulators say any marriage between the two lenders will require a viable business model, according to a German media report.
Will they or won't they – and can they? Quelle: Handelsblatt

Will they or won't they – and can they?

(Source: Handelsblatt)

If all else fails, Deutsche Bank may wind up merging with its main rival Commerzbank this summer – if regulators allow it.

The ECB apparently has a list of criteria which would have to be met in order to approve a merger between Deutsche Bank and Commerzbank, the country's biggest and second-biggest lenders. The main precondition would be that the banks come up with a convincing business model, German media reported.

In the case of a marriage, the merged bank would have to be profitable, according to the Süddeutsche Zeitung newspsaper, citing sources close to Deutsche's supervisory board. Furthermore, shareholders would have to make capital available. And any plan would rise or fall with its reception by financial markets, as any unrest could, say, cause banks' share prices to plummet. The ECB again declined to comment, the newspaper noted.

Rampant rumors

Earlier this week, news emerged that Qatar, most likely in the form of its sovereign wealth fund, had committed to upping its investment in Deutsche Bank. Furthermore, the bank fears the German government may force them into a merger with Commerzbank by the summer if Deutsche cannot meet its targets, Bloomberg reported, citing sources inside the bank.

The news follows rampant rumors that banking authorities, both at the national and European level, are trying to entice Germany's flagship bank to pair up with a rival, either in the country's overbanked domestic market or elsewhere on the continent. Last month, the European Central Bank was reported to have favored a cross-border link-up between Deutsche and a non-German bank. The ECB declined to comment.

In any case, observers have noted the increasing frequency of Deutsche CEO Christian Sewing's meetings with representatives of Angela Merkel's government. And Berlin officials have said they seek to create a “favorable environment” for such a move, even going as far as to reach out to German regulators.


Deutsche’s boss, Christian Sewing, continues to struggle with a welter of problems, including limp profitability, ongoing money-laundering probes, fines for illegal dealings and failed stress tests. The negative headlines have prompted rating downgrades and fueled anxiety about the venerable financial institution.

A merger with Commerzbank is not the only option for Deutsche. Speculation persists that the bank could be part of consolidation in the sector in Europe, viewed by many as important so that larger, more stable institutions could better counter foreign competition. These musings were stoked by comments made by Deutsche’s CFO, who told Bloomberg on Friday: “There’s a lot of talk in the sector overall that over time, mergers, consolidation in the European banking sector would be sensible for a variety of reasons.”

Deutsche apparently mulled merger scenarios with two French banks, BNP Paribas, and Société Générale, as well as paying deeper attention to a tie-up with UBS of Switzerland.

Progress report

On Friday, Deutsche’s doughty shareholders had a glimmer of good news: The bank swung to profit in 2018 – meager at €267 million, but the first time back in the black in four years. At the same time, the bank announced a larger-than-expected €409 million loss in the fourth quarter. "Our return to profitability shows that Deutsche Bank is on the right track," said Sewing.

The bank is also improving its exposure to legal risks. Deutsche said it has addressed 19 of its 20 biggest financial risks, as assessed in 2016. No risks of similar magnitude have since emerged, the lender said. That signals the bank’s confidence about how probes into its involvement in the Danske money-laundering scandal will pan out. In a further indicator of such optimism, Deutsche Bank set aside €1.2 billion for legal issues at the end of 2018, 40 percent less than the previous year.

It seems for now that the question is how quickly Deutsche can meet its targets. It is apparently in no hurry to merge with Commerzbank, itself in the throes of a revamp. Of the rumors, Sewing himself told the press he is focusing solely on returning the bank to profit. Last week, Frank Bsirske, a board member, told journalists that “there is currently no one on Deutsche Bank’s supervisory board who would want to merge with Commerzbank in the short term.”

In that case, the bank will need to show significant progress by the end of March, according to reports. The bank is in a race against time, if it is to avoid a summer merger.

Allison Williams is deputy editor of Handelsblatt Today. Yasmin Osman covers the banking sector for Handelsblatt from Frankfurt. To contact the authors: [email protected], [email protected]