Update: Germany has launched into damage control mode on Thursday, with the Bundesbank issuing a statement claiming that Deutsche and Commerzbank are “solid, stable banks”.
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Alas, Germany’s ‘merger of weakquals’ just wasn’t meant to be.
After more than a month of increasingly fraught deal talks, Deutsche Bank and Commerzbank announced on Thursday that they have abandoned the negotiations after executives from both troubled lenders said the deal wouldn’t have created sufficient benefits to offset to ‘execution risks’, capital costs and restructuring costs.
“We have concluded that this transaction would not have created sufficient benefits to offset the additional execution risks, restructuring costs and capital requirements associated with such a large-scale integration,” Deutsche CEO Christian Sewing said in a statement.
Frankfurt am Main, April 25, 2019 – After careful analysis, the Management Board of Deutsche Bank has concluded today that a combination with Commerzbank would not have created sufficient benefits to offset the additional execution risks, restructuring costs and capital requirements associated with such a large-scale integration. As a result, the two banks have decided to discontinue discussions.
Deutsche Bank will continue to review all alternatives to improve long-term profitability and shareholder returns.
Commerzbank’s board released a statement that was nearly identical.
After a thorough examination, the Commerzbank Executive Board has come to the conclusion today that a merger with Deutsche Bank would not provide sufficient added value – also with regard to the implementation risks, restructuring costs and capital requirements associated with such a large degree of integration. Therefore, both banks have decided not to continue the talks.
Signs that the talks were headed for failure had been evident for weeks, amid a drumbeat of reports about intensifying domestic opposition from the banks’ powerful union and Deutsche’s scramble to come up with a ‘Plan B’ to pitch to shareholders should the deal fall through, including the possibility of cleaving off Deutsche Bank’s most toxic assets and unprofitable business lines in a separate ‘bad bank’ unit (though, as Dealbreaker quipped, what is Deutsche Bank if not a collection of toxic assets and unsustainable businesses?)
“As a general rule mergers tend to happen because there are clearly identifiable synergies to be had between two different counterparties, whose strengths complement each other,” said Michael Hewson, chief market analyst at CMC Markets UK. “This proposed merger offers none of these benefits, given the respective weakness of both banks.”
German Finance Minsiter Olaf Scholz had been pushing for a merger between the two banks in the hopes of creating a new ‘national champion’ to support Germany’s exporters. But some shareholders argued that the conflicts and complications stemming from a potential tie-up made a deal a liability.
Other Commerzbank suitors have been circling, with Italy’s UniCredit and Dutch Bank ING rumored to be interested in buying Commerzbank. UBS and Deutsche have also reportedly pursued talks for Deutsche’s majority owned DWS asset management business to buy UBS’s asset-management business.
Deutsche Bank shares climbed on the news, while shares of Commerzbank ticked lower.