Tuesday 23 April 2019

Commerzbank chiefs start countdown to decision on Deutsche Bank merger

Talks: The headquarters of Deutsche Bank, left, and Commerzbank seen in the background, in Frankfurt. Photo: AFP/Getty Images
Talks: The headquarters of Deutsche Bank, left, and Commerzbank seen in the background, in Frankfurt. Photo: AFP/Getty Images

Arno Schuetze and Andreas Framke

German lender Commerzbank's management wants to decide on whether to go ahead with a potential merger with Deutsche Bank in the next two to three weeks, two sources said yesterday.

Then Commerzbank management wants to take another four to six weeks to carry out due diligence. Commerzbank declined to comment.

Meanwhile, Goldman Sachs and Citi are helping Germany's two biggest lenders work on their potential €24.7bn-plus merger, sources aid.

Deutsche Bank and Commerzbank confirmed on Sunday they are in tie-up talks following months of pressure from Berlin, which has pushed for a deal amid concerns about the health of Deutsche Bank.

Commerzbank is working with Goldman Sachs and Rothschild, as well as with law firm Hengeler Mueller, sources said.

Deutsche Bank is working with Citi and also using its own in-house team of M&A advisers. It is working with law firm Freshfields as well, sources told Reuters. The banks and advisers declined to comment, except for Hengeler, which confirmed the mandate.

German deputy finance minister Joerg Kukies and Deutsche chairman Paul Achleitner are former Goldman Sachs bankers.

Investment bankers said several factors needed to be taken into account when assessing the best structure for any combination. In a straight takeover offer, Deutsche would likely have to offer a premium for Commerzbank's shares. It would have to mark Commerzbank's assets at market values, resulting in a significant capital hole. That could be plugged with a capital hike of around €5bn, or through a sale of Deutsche's asset manager DWS, bankers said.

However, divesting DWS would mean giving up a steady stream of profits and go against Deutsche's goal of shifting its business away from volatile investment banking earnings.

Separately, a Deutsche-Commerzbank deal could also be set up with a new bank holding created, taking on both Deutsche and Commerzbank, or with a deal that sees Commerzbank merged with Deutsche's Private & Commercial bank.

The latter could be organised in a way that Commerzbank's shareholders retain a majority in the new retail and corporate bank, which would enable the lender to keep the tax benefit of being able to carry forward a large part of its losses. These are lost once more than 50pc of its shares change hand.

Issues around regulatory capital - and how to make use of the fact that Commerzbank trades well below book level, which can be used to boost such capital - also need to be addressed, as do other legal and tax issues, sources said.

"The main question is, however, will a merged bank be able to deliver on job cuts? Both Deutsche and Commerzbank have a terrible track record in this respect," one of the bankers said, adding that the main upside of any deal was the huge amount of potential cost synergies.


Irish Independent

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