By Jenny Strasburg, Patricia Kowsmann and Ben Dummett
FRANKFURT -- The fate of Deutsche Bank AG's global investment
bank, including its embattled U.S. operations, has emerged as a
focus of debate following the first week of formal merger talks
with Commerzbank AG, according to people familiar with the
matter.
The two German lenders announced last week they are in deal
talks following months of speculation. The banks have spent
billions of dollars in recent years restructuring, overhauling
management and cutting staff in a bid to revive their fortunes as
independent lenders. But the German government, worried the country
could be left without a single strong lender with global reach if
their troubles persist, has urged them to consider a deal.
The tone of merger talks in Frankfurt has been constructive,
people close to the banks say, but executives and advisers have
only started to tackle thorny issues.
Commerzbank executives, to proceed, want a clear picture of
Deutsche Bank's willingness to restructure its investment bank,
some of the people say. The anticipation of some 30,000
merger-related job cuts -- many of them in German retail-banking
branches and back-office positions -- has contributed to the focus
on Deutsche Bank's trading and advisory businesses.
Deutsche Bank's executives have long argued that the units are
essential to a global investment bank serving European companies
abroad. Deutsche Bank has also seen its significant U.S. presence
as key to its plans.
But the bank's U.S. operations have been on a
tighter-than-normal regulatory leash since 2017, when the Federal
Reserve downgraded them to the rare status of "troubled condition."
The designation has constrained certain risk-taking as the Fed
monitors the bank's progress in improving controls, management
oversight and other areas, people close to the bank say.
The Fed doesn't plan to seek to prevent a merger, a person close
to the matter said. Senior Fed officials have spoken with German
Finance Ministry officials about a potential Deutsche-Commerzbank
tie-up, and the U.S. regulator signaled it wouldn't stand in the
way, the person added. The Fed in such cases would typically
separate its supervisory work from policy-making around foreign
banks, choosing not to interfere with foreign bank mergers in their
home countries.
Commerzbank has a small U.S. presence, but a merger nevertheless
could complicate Deutsche Bank's U.S. cleanup work and add another
layer of Fed scrutiny, people close to the bank say.
The banks hope to finish their initial discussions in a month or
so. They could abort talks or enter a deeper due-diligence process.
A deal probably would take months to complete, people close to the
lenders say.
Big cultural differences between the banks -- Deutsche Bank is a
longtime global trading force, while Commerzbank is a smaller,
domestically focused lender -- have fueled questions about how
their combined businesses might look after expected cuts in
overlapping areas, according to people with knowledge of the
discussions.
Some people close to the banks say concessions about how capital
and how many jobs would be allocated between German corporate
lending and riskier operations like trading could prove one of the
biggest hurdles in discussions.
With projections that roughly one in five jobs at the combined
bank would be cut, a home-market bloodletting of lower-paid roles
could spark criticism if traders and investment bankers elsewhere
are viewed as protected. "We reject a possible merger of both banks
because of the danger it presents for tens of thousands of jobs,"
Jan Duscheck, a representative of Germany's Verdi union, which sits
on both banks' supervisory boards, said in a statement.
Whether or not Deutsche Bank merges with Commerzbank, it needs
to pare back or pull out of investment-banking businesses that lose
money or barely break even, narrowing its reach and therefore its
ambitions, some investors and analysts say. The counterargument is
that dramatic cuts could undercut the German government's drive to
create a national champion.
The merger talks spurred one prominent shareholder to weigh in
Friday. BlackRock Inc. Vice Chairman Philipp Hildebrand, speaking
at a Frankfurt conference, cautioned against European banks
pursuing a merger motivated by a desire to create a big investment
bank to compete directly with U.S. investment banks.
Mr. Hildebrand didn't name Deutsche Bank and Commerzbank but was
referring to them, according to a person familiar with the remarks.
BlackRock is a top shareholder in both lenders. A person briefed on
the firm's view of a Deutsche-Commerzbank merger said it is
skeptical but waiting to hear crucial details.
Also Friday, Deutsche Bank published 2018 executive-pay figures
that showed its investment-banking chief, Garth Ritchie, earned the
biggest total pay package among management-board executives last
year, with EUR8.6 million ($9.7 million). The pay package exceeded
that of Deutsche Bank CEO Christian Sewing.
The investment bank suffered a steep profit decline last year.
Full-year 2018 revenue declined 8% across the business and 16% in
sales and trading, the unit's biggest source of revenue.
Mr. Ritchie has said privately in recent weeks that he believes
in the long-term strategic rationale for a merger with Commerzbank,
but also that banking mergers are notoriously complicated,
according to people familiar with the remarks. His view is it is
too early in the merger talks to know whether a deal makes sense,
one of the people said.
--Bojan Pancevski contributed to this article.
Write to Jenny Strasburg at jenny.strasburg@wsj.com, Patricia
Kowsmann at patricia.kowsmann@wsj.com and Ben Dummett at
ben.dummett@wsj.com
(END) Dow Jones Newswires
March 24, 2019 14:26 ET (18:26 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
Commerzbank (PK) (USOTC:CRZBY)
Historical Stock Chart
From Sep 2024 to Oct 2024
Commerzbank (PK) (USOTC:CRZBY)
Historical Stock Chart
From Oct 2023 to Oct 2024