Germany’s two biggest banks, Deutsche and Commerzbank, have scrapped their plans to merge – a deal that would have created the eurozone’s second biggest bank – saying the risks and costs were too great.
The two banks said that nearly six weeks of high-level negotiations about a tie-up had ended in failure, a move that immediately raised questions about the future of the Frankfurt-based rivals.
Both banks have struggled since the financial crisis and some analysts had questioned the logic of a merger, saying it would just create a bigger bank with the same problems. The possible tie-up was also opposed by unions fearing 30,000 job losses, and raised concerns among investors and regulators.
However, German government officials led by the finance minister, Olaf Scholz, had pushed for a tie-up to create a national banking champion and end questions over the future of the banks.
The banks said on Thursday a deal would not have created sufficient benefits to offset the risks and costs involved. But investors doubt either bank can go it alone for long, under their current strategies, given their low levels of profitability.
Deutsche Bank will now face pressure to make radical changes, such as cuts to its US investment bank as advocated by regulators and some major investors.
“Deutsche Bank will continue to review all alternatives,” Germany’s largest bank said.
The collapse of the potential merger may now open the door to foreign competitors.
“Others will now come out of the woodwork with offers and ideas,” a Commerzbank executive told Reuters.
Doing nothing is “not an option”, Commerzbank’s boss, Martin Zielke, has told his staff, 82% of whom were against a merger in an internal survey.
Both Italy’s UniCredit and ING of the Netherlands are understood to have expressed interest in Commerzbank, which is Germany’s No 2 lender and 15% owned by the government. UniCredit and ING both declined to comment after the news that the merger talks had failed.
Several major Deutsche Bank investors had questioned the deal’s logic and were unwilling to stump up any extra cash to get it done, and credit ratings agencies had also warned of risks. It is understood the European Central Bank would have asked Deutsche Bank to raise fresh funds before it gave the go-ahead for a merger.
The German central bank, which helps oversee the rivals, insisted both banks were sound and stable. “This was the case prior to discussions, during discussions and now,” said Joachim Wuermeling, a Bundesbank executive board member.
Gerhard Schick, a finance activist at Finanzwende and former member of the German parliament, welcomed the end of talks but said Deutsche Bank remains “too great a risk”. “The bank is still far too large and would probably have to be rescued in an emergency,” he said.