FRANKFURT--German hopes of creating a national banking champion able to challenge global competitors were dashed on Thursday when Deutsche Bank and Commerzbank ended merger talks due to the risks of doing a deal, restructuring costs and capital demands.
Germany's two largest banks announced that nearly six weeks of high-level negotiations about a tie-up had ended in failure, confirming an earlier Reuters report and immediately raising questions about the future of the Frankfurt-based rivals.
The decision to ditch the talks followed a final early morning meeting between Deutsche Bank Chief Executive Christian Sewing and his Commerzbank counterpart Martin Zielke, two sources told Reuters. Both CEOs said a deal would not have created sufficient benefits to offset the risks and costs of a merger, which had been opposed by unions fearing 30,000 job losses, and raised concerns among investors and regulators.
While the talks are over, investors doubt either bank can go it alone for long under their current strategies given their low levels of profitability. German government officials, led by Finance Minister Olaf Scholz, had pushed for a tie-up to create a national banking champion and end questions over the future of both banks, which have struggled to recover since the financial crisis.
Deutsche Bank's 2018 return on equity was just 0.4 percent, trailing far behind rival U.S., and increasingly other European, investment banks, while Zielke said this month that Commerzbank does not have the market share for costly investments, fuelling speculation of an alternative tie-up if talks fell through.
Deutsche Bank will now face pressure to make more radical changes, such as cuts to its U.S. investment bank as advocated by regulators and some major investors. It is already looking at a deal for its asset management unit DWS.
"Deutsche Bank will continue to review all alternatives," Germany's largest bank said.
Employees of both banks immediately welcomed the news, although a senior Commerzbank manager acknowledged it opened the door to further uncertainty as foreign competitors circle. "It is clear that others will now come out of the woodwork with offers and ideas," the manager told Reuters.
Doing nothing is "not an option", Zielke has told his staff, 82 percent of whom were against a merger in an internal survey. Both UniCredit and ING Groep have expressed interest in Commerzbank, which is Germany's No. 2 lender and 15 percent owned by the government, sources have said.
