According to the news report by Bloomberg, Deutsche Bank AG, once one of the biggest financial institutions in Europe, has been struggling to turn itself around for years now. However, now it has finally thrown in the towel and has agreed to enter into a government-backed merger negotiation with its long-time rival Commerzbank AG.
The two struggling banks are finally giving into their government’s demand to create a durable German lender that will have a global presence. However, this does not mean that the German banks’ troubles will be over.
Both lenders have struggled with revenue growth despite massive cuts to their respective investment banking divisions. A slowdown in the economy has also dampened their hopes of higher interest rates, which has added to the seriousness of their current situations.
If the two banks do finally reach a deal, then the newly merged company will be facing massive job cuts, a weakening economy in the European Union, political turbulence and uncertainty, investigations by the US government into Deutsche Bank’s dealing with Donald Trump and skeptical investors and clients.
Added to this, the companies will be faced with the herculean job of integrating the two lenders.
In a letter to his employees, the Chief Executive Officer of Deutsche Bank, Christian Sewing stated that he had consistently stressed the fact that consolidation in the German as well as the European region was an important subject for them. He said that the company needed to assess how they would play a part in shaping this future.
Finally, after months of speculation as well as confidential talks with the German Finance Ministry, Deutsche Bank and Commerzbank confirmed that they were moving ahead with merger talks on Sunday.
The Finance Ministry also confirmed in an emailed statement that the banks had begun open-ended discussions, and that it was in contact with both the parties on a regular basis.
Olaf Scholz, the Finance Minister, and Joerg Kukies, the Deputy Finance Minister, have been pushing for a deal between the two companies so that Germany would have a bank that would support an export-focused economy. Germany still owns a large stake in Commerzbank after it bailed out the struggling back during the financial crisis.
The banks agreed to enter into formal negotiations only after the German government indicated that it would not interfere in necessary job or cost cuts. And, according to one person who is aware of the details of the matter, Deutsche Bank is going to spend the next one month in these discussions.
Not everyone is in favor of this merger. The bank employees’ trade union is opposing this merger because it would mean the loss of tens of thousands of jobs. According to insider sources, this merger could lead to the loss of as many as 30,000 jobs.
The markets however, reacted favorably to the news, with the shares of both the lenders going up in trading on Monday. Deutsche Bank’s shares rose by 2.9% in Frankfurt during the morning’s trading, while Commerzbank’s shares went up by 4.3%.
A merger between the firms, both of them 149 years old, would lead to the creation of Europe’s 4th largest lender. The merged company’s assets would be to the tune of €1.81 trillion (~$2.05 trillion).
Currently the banks have a combined total market capitalization of around €25 billion (~$28.39 billion), which is relatively small. This is due to the steady slide in the two companies’ share price over the last few years. From their peaks, both Deutsche Bank and Commerzbank have lost over 90% of the stock price.