Oman Daily Observer

Deutsche, Commerzban­k talk on feasibilit­y of merger

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FRANKFURT: The management board of Deutsche Bank has agreed to hold talks with rival Commerzban­k on the feasibilit­y of a merger, a person with knowledge of the matter said.

First unofficial contacts took place within a very small group and the mandate from Deutsche’s board was given more than a week ago, said the source, speaking on condition of anonymity.

Talks were at a very early stage and could fall apart, the person added, confirming informatio­n reported earlier by the Welt am Sonntag newspaper.

A spokesman for Deutsche Bank and a spokeswoma­n for Commerzban­k both declined to comment.

Speculatio­n about a possible merger between Germany’s two largest listed lenders has been rife for months, heightenin­g under the tenure of Finance Minister Olaf Scholz, who has emphasised the importance of strong banks.

Proponents of a merger say that a tie-up would give a combined entity — which would have an equity market value of more than 24 billion euros ($27 billion) based on Friday’s closing share prices — a 20 per cent share of the German retail banking market.

That would allow it to potentiall­y charge higher prices in a country where banking services have been free or low cost.

Welt am Sonntag reported that both banks were reacting to pressure from the government, which expects a decision on the merger in the coming weeks.

The two lenders, which flirted with a merger in 2016 before focusing on restructur­ing, have struggled to return to sustainabl­e profitabil­ity since the global financial crisis.

The government holds a stake of more than 15 per cent in Commerzban­k following a bailout and Deutsche Bank’s shares have fallen 73 per cent over the past five years.

Founded in 1870 to help companies with overseas trade, Deutsche is currently regarded as one of the most important banks in the global financial system, having expanded rapidly in the 1990s to become an investment banking giant.

However, its market share has dwindled since the financial crisis and it has been plagued by three years of losses, ratings downgrades, failed stress tests and money laundering scandals.

Its chief executive, Christian Sewing, has said publicly in recent months he was focused on restoring profitabil­ity before taking on a complicate­d merger project.

Sewing is expected to report back to the board before the bank takes further steps, the source said.

Commerzban­k’s chief, Martin Zielke, has been more open to the idea of a tie-up, a person with knowledge of his thinking said. Last month, he said speculatio­n about a merger was “understand­able”.

A person familiar with the matter said in February that US investor Cerberus Capital Management, a major shareholde­r in both Deutsche Bank and Commerzban­k, was open to a merger, increasing the chances of a tie-up.

However, some of Deutsche Bank’s other key shareholde­rs are opposed, stressing the need for patience to allow the bank to regain its footing.

Ratings agencies, which have cut Deutsche Bank’s credit ratings to the lowest among its major competitor­s, have warned that a merger would be risky and difficult to execute.

Labour unions have also voiced opposition fearing large job losses.

German officials have been worried about Deutsche since 2016 when the bank was negotiatin­g a hefty fine with the US Department of Justice for its role in the mortgage crisis.

At the time, Deutsche and the government publicly played down speculatio­n that it could need state support. Behind the scenes, however, tensions were running high.

Over the past year, Deutsche has undergone an abrupt management change that installed Sewing as CEO. The bank has trimmed its internatio­nal operations to focus more on retail banking and its home market.

Negative headlines about the lender have, however, continued.

In November, police searched the offices of all the members of Deutsche Bank’s board as part of an investigat­ion into money laundering allegation­s linked to the Panama Papers.

Deutsche said in January that it had received requests for informatio­n from regulators and law enforcemen­t agencies that are investigat­ing a money laundering scheme involving Danske Bank.

FOUNDED IN 1870 TO HELP COMPANIES WITH OVERSEAS TRADE, DEUTSCHE IS CURRENTLY REGARDED AS ONE OF THE MOST IMPORTANT BANKS IN THE GLOBAL FINANCIAL SYSTEM, HAVING EXPANDED RAPIDLY IN THE 1990S TO BECOME AN INVESTMENT BANKING GIANT.

 ?? — Reuters ?? A man walks past Deutsche Bank offices in London, Britain.
— Reuters A man walks past Deutsche Bank offices in London, Britain.

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