March 18, 2019 / 3:44 PM / in a month

Breakingviews - German bank champion will be made on Wall Street

Banners of Deutsche Bank and Commerzbank are pictured in front of a trader at the stock exchange in Frankfurt, Germany, September 30, 2016. REUTERS/Kai Pfaffenbach

LONDON (Reuters Breakingviews) - Overexcited, overpaid and over here. The comic line once aimed at American soldiers in Europe also summarises the involvement of U.S. banks in the possible merger of Deutsche Bank and Commerzbank. If the deal happens, it could owe much to Wall Street nous.

The potential combination of Germany’s two largest lenders to create a national champion, with the government as a major shareholder, may seem the antithesis of American financial capitalism. Dig beneath the surface, however, and myriad links to Wall Street reveal themselves.

Take Goldman Sachs. The U.S. firm, along with Rothschild, is among its advisers. Deutsche chairman Paul Achleitner is a Goldman alumnus, as is John Thain, who sits on Deutsche’s supervisory board.

The German government, which owns a 15 percent stake in Commerzbank, is pushing for a deal, according to local media reports. One of its keenest supporters is Finance Minister Olaf Scholz. Last year he appointed Joerg Kukies, the former co-head of Goldman’s German and Austrian operations, as his deputy.

Citi is advising Deutsche, according to a person familiar with the situation. U.S. private equity fund Cerberus, meanwhile, is an investor in both Deutsche and Commerzbank. Its President Matt Zames, who is currently advising Deutsche on treasury and liquidity issues, was previously JPMorgan’s chief operating officer.

It’s no surprise that European companies turn to American banks for merger advice. For the past five years Wall Street groups have dominated the league table for German M&A fees by deal value, according to Refinitiv. Deutsche hasn’t bagged the top spot in four years. The last time a European investment bank featured in the top five M&A advisers in the region was Deutsche back in 2014.

That’s one incentive to create a regional banking champion. Together Deutsche and Commerzbank would have assets worth nearly 2 trillion euros, rivalling France’s BNP Paribas. Still, the prospect of rainmakers advising on how to slash tens of thousands of jobs is unlikely to endear them to the German public.

After years of trying to build up a global investment bank capable of competing with American rivals, Deutsche is now applying M&A skills to itself. The irony is that Wall Street will play a big part in making it happen.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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