Deutsche Bank and Commerzbank revealed on Sunday that they were in merger talks, which confirmed the rumors that had circulated hinting at the merger. The announcement did not come as a surprise given the manner in which Deutsche Bank has struggled since the 2008 financial crisis.
However, the announcement triggered concerns by labor unions about the likelihood that the tie-up could lead to the loss of up to 30,000 jobs, which led some analysts to question the benefits of the merger.
The two German banks issued individual statements after the management boards at each of the banks met separately in a bid to fast track the process, despite both banks stating that they were not close, or certain of making a deal.
Deutsche Bank stated:
In light of arising opportunities, the management board of Deutsche Bank has decided to review strategic options.
Deutsche Bank’s CEO, Christian Sewing wrote to employees that:
What is important to me is that we will only pursue options that make economic sense, building on the progress we made in 2018.
The German government has been pushing for the tie-up as both firms have struggled in the recent past as Deutsche Bank has been making losses in the US, while Commerzbank has had challenges growing both at home and abroad. The German government owns 15.5 % of Commerzbank following its bailout of the bank after the 2008 financial crisis.
German authorities see the two banks as being a crucial part of the country’s economy and are keen to avoid a foreign takeover of the banks. The two banks control about 20% of Germany’s retail banking market and about €1.8 trillion in assets including investments and loans. Commerzbank specializes in funding medium-sized enterprises, a crucial segment of the German economy, which is why the government wants it to remain German-owned.
However, many investors are not convinced that a merger is the right course of action given previous examples of disastrous bank mergers. Investors are also not sure how Deutsche Bank’s assets shall be valued given that it has never fully recovered from the losses arising out of the financial crisis.