CRZBY Commerzbank Ag (PK)

By WSJ City 

Despite spending billions of dollars in an attempt to stay indepedent, Deutsche Bank and Commerzbank are now weighing a merger.

If a deal is reached, it could do more than shore up the banks themselves: The formation of a national banking champion would give much-needed support to Germany's economy when the outlook is bleak.

Here's how the German banking industry and the two banks stack up.

FRAGMENTED SYSTEM

Germany's banking market is fragmented. At 1,600, the country has more banks than the UK, France, Italy and Spain combined. As a result, Deutsche Bank and Commerzbank each have a small market share in domestic lending.

In a merger, their market share on domestic lending and deposits would rise to between 10% and 15%, according to Fitch Ratings.

PROFIT SQUEEZE

Stiff competition has hampered banks' profitability. Both Deutsche and Commerzbank are among the eurozone's least profitable banks.

INVESTMENT BANKING

Commerzbank's additional pool of retail deposits and cheaper funding would help offset Deutsche's lending costs, which have increase on low investor confidence.

HURDLES

Scepticism about the benefits of the merger is widespread. "In our view a combination of these two low return-on-equity generating banks is unlikely to lead to improvement in earnings in the short term, leading to a bigger balance sheet [and] higher capital requirements," JPMorgan said in a recent note.

Deutsche Bank and Commerzbank would also have to convince their shareholders that a tie-up, which would likely dilute their holdings, would be good for them.

A fuller story is available on WSJ.com

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(END) Dow Jones Newswires

March 25, 2019 09:05 ET (13:05 GMT)

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