Deutsche Bank’s prospective merger with smaller rival Commerzbank threatens to unsettle the German banking industry and puts 30,000 jobs at risk.
But the deal is just the latest drama to hit the 150-year-old lender after a string of losses, an executive boardroom battle and billions of dollars in fines.
A successful tie-up would create the second largest bank in Europe, behind HSBC, and realise Deutsche Bank chief executive Christian Sewing’s vision to strengthen its high street banking business. While rivals including Commerzbank started to scale back investment banking operations in the wake of the 2008 crash, Deutsche Bank persisted undeterred – that is, until last year.
Sewing took over last April after Deutsche Bank ousted its British former chief John Cryan, who oversaw three straight years of financial losses. The new boss wasted no time in introducing sweeping changes that included cutting back its investment banking workforce by more than 7,000.
The new chief executive has stressed that the bank still has global ambitions. However, the lender has suffered blows to its international reputation in recent years.
Deutsche, like other investment banks, has paid out billions in fines and settlements relating to its activities in the lead-up to the 2008 banking crash, including interest rate manipulation and defrauding firms in the sale of mortgage-backed securities.
The German bank has also been in the spotlight for being one of the biggest lenders to the Trump business empire.
Deutsche recently reported its first full-year net profit since 2014, but that milestone has not dampened Sewing’s appetite for change. Over the weekend, Deutsche Bank and Commerzbank confirmed they had entered into merger talks, ending months of speculation over a deal.
But experts are sceptical that the merger would be a quick fix to the lender’s troubles. Analysts at Barclays warned that while the “status quo is not sustainable in the long term” for Deutsche Bank, a Commerzbank tie-up is not a silver bullet.
“Merging with Commerzbank could realise some cost synergies” and increase the bank’s footprint in Germany, Barclays said. “Nevertheless, this would involve significant execution risk and the benefits might not be apparent for many years.”
While the move has been touted as a route to greater profitability for the troubled lenders, unions have warned that the merger could put up to 30,000 jobs at risk.
Jan Duscheck, a representative of the German union Verdi, said 10,000 jobs were at risk in the short term, according to reports, though that number could triple over the longer term. Deutsche Bank is one of the biggest banking employers in London, with about 7,500 staff.
Commerzbank for its part is still 15% owned by the German government, having taken €16.2bn as part of a state bailout in 2009. It has significantly scaled back its investment banking and trading activities, becoming a simpler and more stable retail and corporate lender, but still has international operations including in London, where it employs about 1,000 staff.
Deutsche does not have the best track record when it comes to corporate tie-ups, having struggled to realise the benefits of its Postbank takeover in 2010. The bank went from trying to integrate the business, to trying to sell it, and then trying again to bring it back into the fold. “One could argue that so far Deutsche Bank has struggled to integrate Postbank, so could struggle with Commerzbank in the event of such a merger eventually taking place,” Barclays analysts said.
Merger talks are seen in Germany as having been driven by the finance minister, Olaf Scholz, who has repeatedly having stressed the need for a “national champion” in the banking sector. In times of looming international trade conflicts, his argument goes, Germany needs to shed its reliance on British or American banks if it wants to support the ambition of its industry.
In a letter to bank employees on Sunday, Sewing said: “We have to assess opportunities as they arise. I have consistently stressed that consolidation in the German and European banking sector is an important topic for us. We have to assess how we want to play a part in shaping it.”
Merger talks are expected to last weeks. Shares in the two banks rose on Monday, with Commerzbank climbing 6.9% and Deutsche Bank, 4.2%.
