Years of speculation, informal talks, and endless rumors abound finally have led to the point where two of Germany’s largest banks are finally sitting down to talk of a merger. At the face of it, this makes sense for Germany to seek a financial national champion that can support the advancement of German financial power globally, but also domestically. Geo-strategically, this makes plenty of sense for the German government to approve. The merger would make the new bank, whatever its called, the third largest in Europe before HSBC and BNP Paribas.
The problem is that the two banks lack profitability and suffered from poor stock performances since 2010:
An argument could be made that this creates all the more reason to merge the two. Yet, others disagree. The two banks also saw extraordinary amount of liquidity pressure during the Financial Crisis in 2008 and as a consequence the German government still owns a substantial amount of Deutsche Banks and Commerzebanks non-performing derivatives and other assets in the form of bailouts. The merger would cause the loss of about 30,000 German jobs, mostly low-level commercial bankers, not the unpopular richies that run the show.
At any rate, my quick take is also that this merger doesn’t make sense. Let me facetiously sum up the pro-merger argument: let’s merge two highly unprofitable banks into one mega unprofitable bank that will definitely have to be bailed about again in the event of another financial crisis while also cutting 30,000 jobs. Again though, I am just giving a quick take and this is not necessarily the point of view of an expert on the two banks financials. I’m just trying to figure out how two troubled banks makes one good one. I think a lot of German’s are also scratching their heads trying to figure this out as well.
Apparently Deutsche Bank is skeptical too with its current head Christian Sewing, who’s only been in the job for a year, has apparently urged that his bank should stabilize before a merger. a red flag if I’ve ever heard of one.
From 30,000 feet up, my feeling is that this will eventually happen. The German government signaled it was okay with the deal in spite of the job losses it would create (and from the Social Democrats nonetheless), it would be good for stock probably which isn’t saying much since its trash anyways, and the strategic importance of German financial power argument will probably win the day. However, I side with Sewing that the banks first need to create more profitability before consolidating the industry. But this is the whole reason why the banks are merging. At any rate, don’t be surprised if this goes ahead in the next few years.
The Internationalist 