There is a clear conflict of interest that has recently developed between Deutsche Bank and Commerzbank. However, executives from both banks have denied this. According to Bloomberg’s latest report, senior officials from both banks expect a government-brokered merger in the middle of 2019. Both banks are German licensed financial institutions, and there have been recent talks between both banks and senior German Ministry of Finance.
Deutsche Bank has been unable to reverse its revenue slump, which has resulted in the German state’s decision to merge both banks. This will hopefully save both banks by cutting costs via collaboration. Germany has forecast a looming recession, which would cause additional strain on the banks. Government officials believe a merger is the only way to save both banks, especially if there is a downturn. Germany has forecast a decrease in its economic growth by 1% for 2019.
This situation has affected Deutsche Bank’s stock prices as they have gone down by a further 3% in the last few months. However, one firm is welcoming this news - Cerberus Capital Management. In 2017, they invested more than $2 billion in the form of equity both in Deutsche Bank and Commerzbank.
Cerberus Capital Management has shown interest in both of these banks. The firm is also interested in building a minority stake in NordLB, another another German bank. No one would benefit more from this merger other than this firm in this situation. The viability of both these major banks isn’t under any threat as they have gone through restructuring and capital raising for many years and they can definitely achieve profitability with some strategic changes.
Deutsche Bank has already appointed Cerberus’s advisory arm to begin consulting on a new strategic plan. The firm has helped the bank deploy funds to higher-yielding assets according to Bloomberg. The firm’s representatives have met with the German Finance Ministry officials several times times in the last 6 months. The government is still the biggest stakeholder in Commerzbank as it holds 15% of the total shares.
The outlook for the industry, as well as the German government, has worsened since 2017, and Deutsche Bank is now involved in yet another money laundering scandal. The bank is being scrutinized heavily in the USA because of its dealing with US President Trump. Police raids in November have had a negative impact on the bank’s revenue, which was already low in the fourth quarter. When you look at the situation at Commerzbank, which relies on profits from its business with mid-sized corporate clients, it is struggling because of the trade wars and foreign rivalries.
The recovery of both banks has become complicated. As the European Central Bank has suspended QE, record low interest rates are not likely to increase any time soon due to economic growth sputters, further increasing the squeeze on net interest margins. Deutsche Bank is finding it difficult to cut costs as funding has become more expensive. Deutsche Bank’s CEO Christian Sewing has publically denied any kind of merger with the Commerzbank. The Bank’s CEO arrived only a year ago. However, Sewing’s plans of cutting costs at Deutsche Bank have been effective and they could have good results.
After careful analysis, there is no doubt that it is a difficult time for both banks. A merger between Deutsche Bank and Commerzbank is imminent. However, if the merger doesn’t happen, Deutsche Bank will have to pay fines now worth billions of Euros.