By Jenny Strasburg
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 26, 2019).
Deutsche Bank AG and UBS Group AG this year explored ways to
combine their businesses, including talks as recently as mid-June
to form an unusual alliance of investment-banking operations,
according to people familiar with the discussions.
The talks between Germany and Switzerland's biggest lenders show
how far European lenders are willing to go to address a punishing
banking environment. Hammered by negative interest rates and
slowing economic growth, European banks are struggling to compete
globally and fend off encroachments from bigger U.S. rivals on
their home turf.
A deal never coalesced, as the two sides failed to sort out
thorny issues, including how to structure and allocate capital to
any joint operations, the people said. Deutsche Bank and UBS for
years have contemplated exploring a merger, the people said. One
person who has been involved in multiple deliberations said the
talks have been on and off but never fully off the table.
Inside Deutsche Bank, a tie-up was seen as a way to save
Germany's biggest bank from the painful cuts now in motion, the
people said. The banks discussed a full-blown merger earlier in the
year, a move that would have created a European banking behemoth
more able to compete with Wall Street's most dominant players, such
as JPMorgan Chase & Co. and Goldman Sachs Group Inc. Bloomberg
reported in May that the two banks briefly explored a merger. The
June talks haven't been previously reported.
UBS has suffered from volatile performance in its investment
bank, and shares currently trade near their lowest point since it
restructured its business in 2012. Deutsche Bank's shares trade
just above their all-time low hit this month.
The mid-June discussions, held near Milan, included the finance
chiefs of both banks, senior investment-banking executives and
advisers, some of the people said. The executives discussed ways to
swap some operations and intertwine parts of their investment banks
but keep the parent companies separate, according to the people
familiar with the talks.
The people said a concept behind an alliance was to play to the
strengths of both lenders, as Deutsche Bank, which remains a big
player in its fixed-income trading and structuring business, would
get referrals from UBS, which pulled back from some of those
business lines several years ago. Deutsche Bank would feed business
into UBS's more successful equities franchise, the people said. UBS
was interested in some of Deutsche Bank's deal-advisory teams in
the U.S., a person briefed on the discussions said.
Such a venture was seen by some involved as a possible test
case, some of the people familiar with the talks said. It might
have allowed the German and Swiss banks -- and regulators,
governments and investors -- to gauge whether a merger might make
sense, without committing to a new headquarters, regulatory regime
or full restructuring, the people said.
Deutsche Bank's then-investment-banking chief Garth Ritchie was
at the meeting in Italy, along with Alexander von zur Muehlen, who
is Chief Executive Christian Sewing's top internal adviser on
strategy. So was UBS's Robert Karofsky, co-president of the
investment bank, people familiar with the meeting said.
UBS Finance Chief Kirt Gardner attended, and Deutsche Bank's
CFO, James von Moltke, dialed in, people familiar with the talks
said. Tadhg Flood, a partner with deal advisory firm Centerview
Partners, was advising the German bank, the people said. He
previously served inside Deutsche Bank and remains a confidant of
Mr. Sewing. On the UBS side was Jonathan Wills, the people said,
another Deutsche Bank alum who worked this year for consulting firm
Oliver Wyman. In June, Mr. Wills joined UBS as head of
Earlier in the year, when Deutsche Bank was in talks to merge
with crosstown rival Commerzbank AG, Deutsche Bank had parallel
discussions with UBS to combine their asset management arms, The
Wall Street Journal and others reported in April.
UBS Chairman Axel Weber earlier this year discussed with German
officials the potential merits of a UBS-Deutsche Bank deal, and UBS
Chief Executive Sergio Ermotti was also open to exploring the idea,
some of the people said.
The full merger talks went on for weeks, but by May they bogged
down over regulation of the investment bank and the location of a
combined bank's headquarters -- Zurich, Frankfurt, a third location
where neither bank is located, or some combination of the three,
according to people familiar with the talks.
By June, Deutsche Bank was running out of time. While talking
with UBS, the German bank was planning cuts and discussing with
other banks selling off stock-trading technology and pieces of its
prime-brokerage franchise, which serves hedge funds. French bank
BNP Paribas eventually struck a deal for some of those
The alliance discussions with UBS were short-lived; UBS walked
away after the Milan meeting, some people familiar with the
negotiations said. Deep cooperation short of a merger is rare in
the banking world. People involved in the talks said the two sides
decided they couldn't quickly sort out how to structure the
operation or share capital between the entities. One of the people
said the idea was a long shot.
On June 21, Mr. Sewing emailed business heads demanding
additional details for executives preparing the "equity story" for
a major restructuring, people familiar with the internal
Some inside the bank said the crunch of hurried decision-making
left executives little time to finalize senior management and
cost-cutting decisions. They say the impact is still felt, with
confusion about what services the bank will keep and how much
capital those businesses need.
On the first Sunday in July, Messrs. Sewing and von Moltke laid
out a reorganization that included the departure of three
management-board members, including Mr. Ritchie, and 18,000 job
cuts. There will also be a major pullback from the bank's Wall
Street presence, with an exit from most of its equities business
and more investment in its strongest fixed-income and advisory
Write to Jenny Strasburg at firstname.lastname@example.org
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