Deutsche Bank, Commerzbank Shares Rise on Merger Talks
March 18 2019 - 5:55AM
Dow Jones News
By Sarah Sloat
Shares in Deutsche Bank AG (DBK.XE) and Commerzbank AG (CBK.XE)
rose Monday after the German banks said that they had entered
formal merger talks following months of speculation of a potential
tie-up.
On Sunday, Deutsche Bank said the talks are part of a review of
strategic options for the bank, which has faced challenges that
eroded the market value of what was once Europe's most globally
ambitious financial institution.
At 0920 GMT, Deutsche Bank traded 3.2% higher at 8.07 euros
($9.14) and Commerzbank was up 5.8% at EUR7.56.
Confirmation of the merger discussions should give European
indexes an opening push, says Peel Hunt, but analysts in general
are skeptical of a Deutsche-Commerzbank combination.
"Share prices of both banks rise in early trading over optimism
that some form of the deal might get done," said CMC Markets UK,
but "this remains a big ask, with many obstacles."
These include value assessments of both complex and more
traditional products on the banks' balance sheets, as well as
nonperforming loans, said Michael Hewson, chief market analyst at
CMC Markets UK.
"While investors may well be buying into the early narrative of
some form of deal, the old saying that you can't make a silk purse
out of a sow's ear has never been more true," Mr. Hewson said.
A deal would bring cost savings for both banks, which have spent
billions of dollars on restructuring and taken measures to reduce
staff. But they have been pressured by a long period of low
interest rates, among other challenges.
"The question that comes to mind is whether combining two
struggling banks would just create one larger 'too big to fail'
struggling bank?" says Jasper Lawler, head of research at London
Capital Group.
German government officials have been concerned about the
decline of the two banks, which contrasts with growing power among
banks in other countries. The potential creation of a "European
champion" to compete with foreign institutions in banking and other
industries has encouraged finance ministry support for a merger,
people involved in government discussions have told The Wall Street
Journal.
Write to Sarah Sloat at sarah.sloat@wsj.com
(END) Dow Jones Newswires
March 18, 2019 05:40 ET (09:40 GMT)
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