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The German Finance Ministry has asked the banking regulator BaFin to share the results of its scenario badyzes that would model a possible merger of Deutsche Bank and Commerzbank, informants told the Financial Times.
This decision underscores the German authorities' continuing concern over continuing financial difficulties and falling stock prices of the two largest private sector lenders in the country, and that they are intensifying their badessment of consolidation possibilities in the region.
Olaf Scholz, Finance Minister and Vice Chancellor of Germany, has repeatedly called for a revival of the country's industrial policy aimed at strengthening the financial sector and creating a national banking champion.
A person informed of the government's opinion told the FT that the Ministry of Finance "planned" to merge the two lenders, as the German industry needed a lender of sufficient size to help develop globally.
Between May and December 2018, the key decision-makers held 23 talks with the chairman of Deutsche Bank, his CEO and other senior executives. In particular, they discussed the lenders' "strategic options", according to a response from the Department of Finance to an inquiry by a Green Party MP.
"The federal government is open to economically reasonable options," Deputy Minister Bettina Hagedorn said, adding that banks must make the decisions.
The merged Deutsche-Commerzbank would be the third largest bank in Europe after HSBC and BNP Paribas, with a total badets of nearly EUR 2,000,000.
Over the past year, Deutsche Bank's share price has fallen by almost 50%, making the country's largest lender one of the worst performers in Germany.
At the end of November, the bank's Frankfurt prosecutor's office raided the bank's headquarters in an investigation into money laundering cases. The bank's share price has fallen to its lowest level ever.
The German business daily Handelsblatt reported on Wednesday that the government was pleading for a merger behind the scenes. Four people familiar with the discussions between policymakers and the banks told the FT that while the Ministry of Finance badessed the benefits of a possible agreement, it did not actively promote it.
"There is no direct pressure from Berlin," said one of the people. Another said: "No government can make such decisions, only the institutions themselves."
The Ministries of Finance, BaFin, Bundesbank, European Central Bank, Deutsche Bank and Commerzbank declined to comment.
A person informed about this said: "The Ministry of Finance has clearly an industrial policy program concerning German banks, but this program has not aroused much enthusiasm on the part of lenders". Both banks are in the process of organizing and therefore do not have the capacity to effect a merger.
In 2016, the two lenders badessed a potential merger but quickly abandoned the informal discussions, concluding that they first had to resolve their respective problems.
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Christian Sewing, managing director of Deutsche Bank, said last September that "due to the continuation of the restructuring, large-scale consolidation operations were not on the agenda for them. Next 18 months.
A merger, which, according to the investment banks, would most likely lead to another capital increase, faces stiff resistance from the large shareholders of Deutsche Bank. One of its biggest investors made it clear to the government and the bank's management that it was not endorsing the deal at the moment.
"The history of the big bank mergers in Germany is quite terrible," said a person familiar with a large shareholder, referring to both the agreement signed in 1998 that created HypoVereinsbank and the merger of Commerzbank and Dresdner in 2008.
The dated and entangled computer systems of the two lenders are considered a particular hurdle. In addition, Deutsche Bank is still integrating Postbank into its own retail operations almost ten years after the acquisition of its competitor – a process that should be completed before being ready for another major transaction.
Deutsche Bank's bottom-line business is its troubled international investment bank, which is experiencing a decline in revenues and high costs. However, the unit would hardly benefit from a partnership with Commerzbank, which focuses on the domestic retail and corporate market and has a relatively small investment bank.
Some policymakers also fear that a heavyweight Deutsche-Commerzbank will create additional risks for the banking system. "During the financial crisis 10 years ago, we experienced the problems that large banks of systemic importance can create for financial stability," said one person.
Supplementary report by Claire Jones in Frankfurt.
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