Germany forces a marriage that may not work

FRANK RUMPENHORST | DPA | Getty Images

The photo taken on March 17, 2019 shows the headquarters of the German banks Deutsche Bank (L) and Commerzbank in Frankfurt am Main, West Germany.

In 2007, Deutsche Bank had its own balance sheet of 2,000 billion euros and a market capitalization of nearly 50 billion euros, compared with a relatively modest asset of 270 billion euros and a market capitalization of 17 billion euros. euros from Commerzbank. Over the last ten years, the gap has narrowed.

Deutsche Bank has lost 600 billion euros of assets and lost more than 60% in terms of market capitalization. Commerzbank, for its part, has gained about 100 billion pounds, but has lost half of its market capitalization.

A merger would give Deutsche Bank and Commerzbank access to nearly 1 900 billion euros in total assets and the German government seems to want to press the accelerator to achieve this.

But any rapprochement could be embarrassing for John Cryan, former CEO of Deutsche Bank, Christian Sewing, current boss of the bank and Peter Altmaier, German Minister of the Economy. The three countries have always reaffirmed their confidence in Deutsche Bank's strategy and its position as one of the strongest banks in Europe.

Sewing took office as CEO last April and said in September that the bank could consider merger negotiations once its profitability has been strengthened over the next 18 months. Sewing did not know that he would put pressure on him even before the end of this 18 month period.

The merger will give Deutsche Bank access to a much larger balance sheet, but it could also result in a multi-billion euro financial hole, as it would require reassessing lenders' assets and cutting 30,000 jobs.

The merger, if it were to occur, will include some caveats. The German government still holds about 15% of Commerzbank and a merger would mean that the government will have more say in the bank's transactions. It could also mean that banks could be subject to greater risk aversion in their dealings compared to a decade ago.