Beset with legal and financial troubles, Deutsche Bank executives have been looking at merger options at home and abroad that contrast with the Finance Ministry's ideas about a marriage with Commerzbank.
Internally, managers at Germany’s leading financial institution have weighed the possibility of merging with French banks BNP Paribas or Société Générale, Handelsblatt has learned. The charm of this idea is that the investment banks would fit well together, while there would be little overlap in the retail business.
Deutsche, however, has declined to comment. It is unclear at what point the German bank considered the French banks, but in May of last year, BNP Paribas’ boss effectively ruled out such an option, saying the bank wasn’t considering any major takeovers. Asked by a shareholder whether the bank was “analyzing” this possibility, CEO Jean-Laurant Bonnafé said BNP couldn’t modernize its business and simultaneously pursue major acquisitions, Reuters reported at the time.
Market observers have since noted that while BNP Paribas has its eyes on Germany’s retail banking landscape, it might be less interested in buying Deutsche than in another institution, such as Postbank. According to Business Times, industry insiders speaking on the sidelines at Davos suggested that BNP Paribas could consider buying Commerzbank, Germany's No. 2 commercial lender, and would be well-placed to do so.
Fishing for complements
The two French banks are a step further afield than the more extensive consideration Deutsche paid to a possible linkup with UBS of Switzerland. Deutsche managers met to mull the Swiss tie-up in mid September in Hamburg’s Fontenay hotel. On the plus side, this option appeared promising in that Deutsche’s strength in investment banking could complement UBS’ established wealth management business.
The Swiss likewise played through the scenario, Handelsblatt has discovered. Managers went so far as to consider moving the headquarters to Germany, partly because Swiss regulators wouldn’t approve an ever larger bank. However, UBS managers decided that the German banking market was too complicated, and the risks on Deutsche’s books too great. Plus, in all of these scenarios, Deutsche would be the junior partner, which wouldn't go down well in Berlin.
Finance insiders are watching closely for signs of what may happen to the two leading German banks. At Davos, observers noted that Christian Sewing, Deutsche’s boss, spent time in individual talks with several bank chiefs, including Ralph Hamers of ING and Jes Staley of Barclays Bank. One commented: “Everyone wants to know what’s going to happen to Deutsche and whether there’ll be consolidation.”
Also speaking at Davos, Axel Weber, boss of UBS, underlined the need for mergers in the European banking business, saying only then will institutions be able to compete on a global scale. However, he was seen to downplay the likelihood that UBS would take over Deutsche, saying “major acquisitions tie you down for years,” according to media reports.
National or European 'champion'?
A European champion, however, isn’t in sync with Berlin politicians’ hopes to create a strong German bank. Rumors of a tie-up with Commerzbank have persisted, not least because Deutsche executives have been seen in talks with their Frankfurt rival. Deutsche’s boss has also frequently met with German politicians – 23 times with Finance Ministry officials last year alone.
The authorities in Berlin are known to sympathize more strongly with the idea of a major German bank, mirroring concerns about the stability of the country’s financial system, its standing as a business location, and of course the maladies of its two top lenders.
Politicians are also thought to be concerned at the idea of a European merger if it means the bank’s headquarters would be located outside Germany. Insiders say lawmakers hope to create a “favorable environment” where talks could proceed between Commerzbank and Deutsche Bank. For the banks’ part, both chief executives are gaining the sense that among politicians, the question is not whether, but when the two would merge.
The bosses of Deutsche and Commerzbank have also repeatedly noted they have homework to do before such a merger could even be considered. And employees at the two institutions fear mass dismissals.
While analysts acknowledge the cost savings possible in such a merger, many doubt whether the two ailing banks would be stronger if they were together. Stuart Graham, an analyst at London research firm Autonomous, believes that Berlin politicians want a "Plan B" for Deutsche, which has seen its share price hit record lows amid numerous legal cases. But he said that the idea of a German national champion is also partly based on fears that otherwise, the two banks’ ailments could infect the rest of the financial sector.
Officially, none of these talks are taking place, nor these considerations being weighed. And the history of German banking mergers suggests that skeptics may be right. Deutsche’s takeover of Postbank was as much of a struggle as Commerzbank’s purchase of Dresdner Bank back in 2008.
Handelsblatt's Daniel Schaefer, Michael Maisch, Yasmin Osman, Martin Greive and Andreas Kröner worked on this story. To contact the authors: [email protected]