Business World

Monday 26 September 2016

Cross-border bank mergers seen lifting profits

Arno Schuetze and Jonathan Gould

Published 01/09/2016 | 02:30

The head of Deutsche Bank yesterday called for cross-border bank mergers in Europe, seeing the sector's fragmentation as placing an unacceptable squeeze on bank profits and long-term sustainability.

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John Cryan's remarks will likely spur further discussion about the future of the bank, although he was quick to throw cold water on a report that Deutsche had examined a merger with Commerzbank, which is partly owned by the German state.

Criticising what he called the "scattered regionalism among banks", Mr Cryan said at a financial conference: "We need more mergers, at a national level, but even also across national borders."

Asked if he sees the time coming when Deutsche will engage in large takeovers, Mr Cryan, himself a former M&A banker specialising in financial services during a long career at UBS), said: "Not any time soon".

His comments come weeks after Deutsche scraped through regional stress tests of the sector and as European Central Bank (ECB) money printing saps banks' ability to turn a profit.

Deutsche warned last month that it may need deeper cost cuts to turn itself around after revenue fell sharply in the second quarter due to challenging markets and the low interest rates environment.

Some analysts have argued that Deutsche would be advised to find a partner once it has stabilised its business, cut costs, and put capital and regulatory concerns behind it.

Both Deutsche and Commerzbank - the two biggest lenders in Europe's biggest economy - have been slipping down the rankings of the continent's top banks, hamstrung by a fragmented and competitive home market, growing regulation and negative interest rates.

Their combined market value of around €26bn is less than half of France's BNP Paribas for example.

Deutsche shares rose 3pc in midday trading yesterday while Commerzbank's were up 4pc, outpacing a 2.4pc rise in the STOXX Europe 600 banking index.

Both lenders were shown to be weaker than most peers in European stress tests last month. (Reuters)

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