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Deutsche Bank ends merger talks with Commerzbank

For Commerzbank, still 15%-owned by the federal government, a foreign takeover may be in the cards down the road.

Bloomberg|
Apr 25, 2019, 11.35 PM IST
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BCCL
Deutsche Bank ends merger talks with Commerzbank
Calling off a national merger is opening the door for consolidation on a European level.
FRANKFURT: Deutsche Bank AG and Commerzbank AG ended talks on a historic tie-up, throwing the future of the lenders into question after a series of failed turnaround plans.

More than five weeks of negotiations and the Finance Ministry’s push to forge one strong institution out of two struggling firms failed to overcome the economic and political obstacles to combining the country’s biggest listed banks.

The failure to agree on a deal now forces Deutsche Bank, once Europe’s dominant financial institution, to come up with its fifth turnaround plan since 2015 and allay investor concern about how it will revive growth and boost shareholders returns.

For Commerzbank, still 15%-owned by the federal government, a foreign takeover may be in the cards down the road, with lenders including ING Groep NV and Uni-Credit SpA said to be interested in an acquisition.

“There’s an urgent need now to refine their strategy,” said Ingo Speich, chief of sustainability and corporate governance at Deka Investment. “Calling off a national merger is opening the door for consolidation on a European level.”

Deutsche Bank gained as much as 4.8% in Frankfurt before reversing gains to trade 0.4% lower at 1:20 p.m. local time. The bank’s riskiest bonds slumped and the cost to insure notes against default surged to the highest in a month. Commerzbank, whose shares had risen after the talks were announced, declined as much as 3.7%.

The companies decided that attempting to integrate the two banks would be too difficult to execute and also cited the restructuring costs and additional capital requirements, according to a statement on Thursday. Deutsche Bank said it would continue to review “all alternatives to improve long-term profitability and shareholder returns”. “We do envisage that, over time, consolidation will happen and Deutsche Bank wants to be a part of that,” Chief Financial Officer James von Moltke said in an interview.

Deutsche Bank, which is scheduled to report detailed first-quarter earnings Friday, signaled that the long slide in its franchise continued at the start of the year, with the investment bank driving another drop in revenue. Market conditions improved toward the end of the quarter and the bank is moving in the right direction, Sewing told staff in a memo.

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