March 11, 2019 / 8:36 AM / a year ago

Germany confirms Deutsche-Commerzbank merger talks, some investors wary

BRUSSELS/FRANKFURT (Reuters) - German Finance Minister Olaf Scholz on Monday confirmed that the country’s two largest publicly listed banks - Deutsche Bank and Commerzbank - were exploring a possible merger.

“There are talks about the situation, how it is,” Scholz told reporters when asked about media reports of merger talks.

Reuters and other news organizations, citing unnamed sources, reported at the weekend that Deutsche Bank’s chief executive Christian Sewing had agreed to hold tentative talks with rival Commerzbank.

Berlin, which has been worried about Deutsche’s health, has pushed for a merger. Deutsche Bank has struggled to generate sustainable profits since the 2008 financial crisis.

But two top shareholders in Deutsche Bank are skeptical about a merger, doubting that such a combination would guarantee higher returns, people familiar with the matter said.

And a German banking union also said it would strongly oppose any merger that resulted in large job cuts.

Those in favor of a merger say a tie-up would create a bank with an equity market value of more than 25.6 billion euros ($28.78 billion), based on Monday’s closing share prices, and a 20 percent share of the German retail banking market.

But two of Deutsche’s top shareholders are not convinced.

A merger would cost time and money, and it would in no way guarantee better returns, a person close to a top-10 Deutsche Bank shareholder said on Monday.

“We’re still against such a merger and in principle don’t consider it a good idea,” the person said.

FILE PHOTO: Banners of Deutsche Bank and Commerzbank are pictured in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, September 30, 2016. REUTERS/Kai Pfaffenbach/File Photo

Before a decision is made on any merger, Deutsche must present a comprehensive plan for the future of the combined entity, a person familiar with the thinking of another top-10 investor said on Sunday.

“We continue to be skeptical that a merger would make sense,” this person said.

Deutsche and Commerzbank declined to comment on Monday.

The two banks will make a decision about whether to pursue a merger within weeks, a separate source has said.

The views of the two major investors contrast with those of U.S. investor Cerberus Capital Management, a major shareholder in both banks. A person familiar with the matter said last month that Cerberus was open to a merger, increasing the chances of a tie-up.

The prospect of a merger is also facing resistance from labor unions because of expectations it could lead to job cuts.

The DBV union will use all its resources to combat any merger that would lead to large job losses, a spokesman said, confirming comments originally reported in the Frankfurter Allgemeine Zeitung.

Shares in Deutsche Bank and Commerzbank rose sharply on Monday as German business warmed to the prospect of a deal.

Deutsche Bank shares closed up 5 percent, while Commerzbank shares ended 7.2 percent higher, outperforming Germany’s blue-chip DAX index, which rose 0.75 percent.

Berlin based BGA, the Federation of German wholesale, foreign trade and services, which represents large and mid-sized export businesses said a merger could make sense if it resulted in one German player surviving in the longer run.

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Tougher rules and low interest rates have made it more difficult to find banks willing to provide German companies with export finance.

“It is getting harder for companies to find a partner who can provide funding,” BGA President Holger Bingmann said.

“The business model of banks has come under pressure, and we would be glad if in the long run, to have at least one global player as a partner for our international business.”

Reporting by Peter Maushagen in Brussels and Edward Taylor, Andreas Framke and Tom Sims in Frankfurt; Additional reporting by Rene Wagner in Berlin; Editing by Keith Weir, Jane Merriman and Mark Potter

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