Germany’s two biggest lenders, Deutsche Bank (DB) and Commerzbank (CRZBY.PK) on Sunday confirmed they are in discussions for a potential merger. A merger could result in massive cost savings, in particular by closing branches. But critics reportedly say integrating the firms would be complicated and risky.
The German government appears to favour a deal. It still owns a 15.5% stake in Commerzbank, acquired after the bank was bailed out following the financial crisis.
Reports says that German Finance Minister Olaf Scholz has urged the two to consider merging, as he believes Germany needs a national champion in the banking sector.
Combined the banks would have one fifth of Germany’s High Street banking business and control €1.8 trillion of assets, such as loans and investments.
“Commerzbank and Deutsche Bank have agreed today to start discussions with an open outcome on a potential merger,”Commerzbank said.
Deutsche Bank said,”In light of arising opportunities, the management board of Deutsche Bank has decided to review strategic options. In doing so, the management board of Deutsche Bank is focused on improving the growth profile and profitability of the bank. There is no certainty that any transaction will occur.”
Deutsche Bank said,” In this context we confirm that we are engaging in discussions with Commerzbank.”
“I have consistently stressed that consolidation in the German and European banking sector is an important topic for us,” Deutsche Bank Chief Executive Officer Christian Sewing said in a letter to employees. “We have to assess how we want to play a part in shaping it.”
The announcement caps months of speculation that the two struggling banks would attempt to combine.
A merger could result in massive cost savings, in particular by closing branches. But critics say integrating the firms would be complicated and risky.
Deutsche Bank has been struggling to generate growth and has been hampered by losses at its US investment banking operations.
Commerzbank has also found it difficult to grow.
Both banks are facing an economic slowdown in the Eurozone and in Germany where, at the end of last year, the economy narrowly avoided falling into recession.
Critics of the tie-up say that combining two struggling banks would just create one large bank with problems.
Also, the deal faces opposition from unions who fear that more than 10,000 jobs could be cut if a merger is agreed.