Deutsche Bank, Commerzbank Ramp Up Merger Talks

Deutsche Bank and Commerzbank seem to be getting closer to a merger as informal talks between the two are heating up.

Citing an anonymous source, Bloomberg reported that Deutsche Bank’s CEO Christian Sewing is no longer against completing a deal sometime this year, and the bank’s management board has also approved merger talks with Commerzbank. However, all discussions at this time are considered informal.

“We still prefer our plan A and would love to do our own homework, and look at our strategic options later,” said a person familiar with the Deutsche’s internal discussions, according to The Financial Times.

Both banks have been struggling, with shares of Commerzbank ending 2018 down 54 percent while Deutsche Bank’s stock fell 56 percent. In December federal authorities in Germany raided six Deutsche offices, searching for evidence on two unknown bank individuals, as well as others who are under suspicion for helping customers create tax havens out of the country. A few weeks later it was revealed that Germany’s Finance Ministry was pushing for a merger between the two banks, with Sewing and Finance Minister Olaf Scholz looking into ways to make the merger easier. And this past January the potential merger got approval from German regulators.

The banks and the Finance Ministry declined to comment on these latest reports.

Sources said that Deutsche is now working to implement tougher cost cuts so it can reach its profitability target. Other options also being considered include a merger with another European bank, with some of the names mentioned being UBS Group AG, BNP Paribas SA and ING Groep NV.

U.S. private equity group Cerberus, one of the biggest investors in both Deutsche and Commerzbank, is pushing for a merger between the two. And Deutsche’s chairman Paul Achleitner also supports a merger.

Several of Deutsche’s other large shareholders said they would need to look at a proposal before deciding whether to support it. In fact, two revealed that they are currently leaning toward opposing a merger, while one is in support of a deal.

The two shareholders not in support of a merger do approve of another option that would see major cuts to Deutsche’s U.S. investment banking operations. Sewing, however, has said that the bank will maintain operations in the U.S., with the investment bank remaining a key revenue contributor.