Germany’s two biggest lenders, Deutsche Bank (DB) and Commerzbank (CRZBY.PK) ended talks on a historic tie-up, throwing the future of both lenders into question after failed turnaround plans.
The two lenders decided that attempting to integrate the two banks would be too difficult to execute and also cited the restructuring costs and additional capital requirements, according to a statement on Thursday.
The failure to agree on a deal now forces Deutsche Bank, once Europe’s dominant financial institution, to come up with its fifth turnaround plan since 2015 and allay investor concern about how it will revive growth and boost shareholders returns. For Commerzbank, still 15 percent-owned by the federal government, a foreign takeover may be in the cards down the road, with lenders including ING Groep and UniCredit SpA said to be interested in an acquisition.
It was reported earlier on Thursday that talks were near to collapse.
Deutsche Bank shares gained as much as 3.2 percent in Frankfurt, trading at 7.84 euros as of 10: 15 a.m. local time, while Commerzbank declined as much as 2.3 percent.
Deutsche Bank and Commerzbank have been in talks about a takeover since mid-March but have since faced massive opposition from labor representatives and strong criticism from key shareholders. The German lender is already working on a Plan B that it can present to shareholders once talks officially end, according to people with knowledge of the matter.
Deutsche Bank remains one of the most systemically critical banks in the world — with assets of about $1.5 trillion — underscoring German Finance Minister Olaf Scholz’s desire to reverse the erosion of its franchise. But labor unions vehemently opposed the loss of jobs from a takeover of Commerzbank and lawmakers across the spectrum distanced themselves from Scholz. Large shareholders such as Qatari investors and BlackRock Inc. have questioned the logic of a deal.
The talks were a desperate effort to strengthen two lenders whose shares had lost more than 90 percent of their value from their peak, and to shore up a domestic banking industry that has fallen far behind Wall Street.
Both lenders are struggling until today with the fallout from an aggressive expansion that ended with the financial crisis. While Deutsche Bank survived that crash without direct aid, it paid more than $18 billion in misconduct fines in the last decade. Commerzbank was bailed out after it bought Dresdner Bank from insurer Allianz SE in 2008, two weeks before the collapse of Lehman Brothers Holdings Inc. Continued negative interest rates, a fragmented European banking market, and cutthroat competition at home added to their woes.