Foreign Banks Circle as Deutsche Bank-Commerzbank Deal Collapses
April 25 2019 - 12:56PM
Dow Jones News
By Patricia Kowsmann
FRANKFURT -- The collapse of merger talks between Deutsche Bank
AG and Commerzbank AG has opened the door to what the German
government was trying to avoid in the first place: a foreign
takeover of its banks.
Foreign competitors have already started circling Commerzbank,
the strongest and simplest to absorb of the two. Italy's UniCredit
SpA and Dutch lender ING Groep NV, both with presences in Germany,
have informally expressed potential interest in the lender, whose
client portfolio of medium-size German companies is highly valued,
according to people familiar with the situation.
"I expect Commerzbank will be bought by another European bank,
and it's a question of 'when' rather than 'if'," said Filippo
Alloatti, a senior credit analyst at Hermes Investment
Management.
In a letter sent to the bank's staff, Commerzbank Chief
Executive Martin Zielke said it would continue its strategy to
focus on clients and invest in digitalization. But referring to the
now-defunct merger talks with Deutsche Bank, he added "We want to
grow. This also involves reviewing external options."
At least one potential suitor looks to be standing back. Spanish
giant Santander SA, which has operations spread out around the
world but a small retail presence in Germany, isn't interested in
Commerzbank because of eurozone rules that make it difficult to
move capital and liquidity across borders, a person familiar with
the bank said. Unless a merger generates efficiencies, all
Santander would be left with is an unprofitable bank.
Deutsche Bank's bigger size and more complex structure, which
includes big trading and investment-banking operations, make it a
hard target, analysts said.
Deutsche Bank and Commerzbank had been in formal merger talks
since mid-March. Their efforts were spurred by the German finance
ministry, which since last year has made public its desire for a
national giant to compete with stronger foreign institutions. The
German government owns some 15% of Commerzbank, so its position
toward any merger is crucial for its success.
Many banks have started exploring tie-ups of operations rather
than full-on mergers.
Earlier this month, Santander and France's Credit Agricole SA
agreed to combine their custody and asset-servicing operations,
creating a EUR3.34 trillion ($3.72 trillion) custodian business
with more scale to compete.
Deutsche Bank officials, in parallel with merger talks with
Commerzbank, have explored a combination of the bank's
asset-management arm, DWS, with UBS Group AG's asset management
business. Such a deal would improve the business scale and help
both banks gain with efficiencies.
UBS Chief Executive Sergio Ermotti declined to comment on a
possible deal Thursday, but in a first-quarter earnings call, he
reiterated his belief that consolidation in Europe is
inevitable.
"I mentioned already in the past couple of years that
consolidation one day or another would be part of the equation in
Europe," Mr. Ermotti said.
Behind closed doors, officials at the European Central Bank,
which supervises both German banks, have criticized Germany's focus
on creating national champions instead of opening up to
cross-border mergers that would boost Europe's struggling banking
landscape. Many European institutions aren't profitable enough and
despite recent efforts to cut costs, continue to be highly
inefficient.
"The banking system in Europe is overcrowded," ECB President
Mario Draghi said earlier this month. "The need for consolidation
is very, very significant."
There are serious roadblocks for that to happen, however.
For one, while many banks have accumulated more capital over the
past years, the cushions may still be too low to absorb the high
restructuring costs of a combination, according to European bank
officials. Talks between the two German banks, for instance, fell
apart after it became clear restructuring charges would affect
capital ratios in a significant way, while profits wouldn't grow
significantly given Germany's crowded and highly competitive
banking sector.
Another big problem is that current rules force eurozone banks
and their foreign subsidiaries to meet liquidity and capital
requirements on a national level. That makes it expensive for banks
to have operations spread out. Banks also can't freely shift
deposits from one country to another.
According to RBC Capital Markets, a merger between UniCredit and
Commerzbank would face the same issue.
"We estimate the potential deal including the capital increase,
would result in a 12% [earnings per share] dilution by 2021, which
we do not find attractive," RBC Capital Markets said in a note.
--Giovanni Legorano, Ben Dummett and Brian Blackstone
contributed to this article.
(END) Dow Jones Newswires
April 25, 2019 12:41 ET (16:41 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
ING Groep NV (NYSE:ING)
Historical Stock Chart
From Aug 2024 to Sep 2024
ING Groep NV (NYSE:ING)
Historical Stock Chart
From Sep 2023 to Sep 2024