Financial Times: Deutsche-Commerzbank deal seen as a question of when, not if

Bankers point out that any merger would have to be radical to be successful, according to Financial Times.

To many observers in Frankfurt a tie-up between Deutsche Bank and Commerzbank is not seen as a question of if, but when. The prevailing view among the banking cognoscenti in Germany’s financial capital is that the country’s two largest listed lenders are very likely to merge eventually.

The common opinion, backed by large investors in Deutsche, is that the bank first has to successfully integrate Postbank and restructure its ailing investment bank division before it can do a deal with Commerzbank.

“Lumping together two sick men doesn’t create a healthy one,” said a person familiar with the thoughts of an influential Deutsche shareholder.

There are two scenarios that could accelerate the potential merger. One is that Deutsche realises that it is unable to turn itself round under its own steam; the other is that a foreign peer tables a bid for Commerzbank, forcing Deutsche’s chief executive Christian Sewing to make a counter offer.

Assuming a 35 per cent premium on Commerzbank’s current market capitalisation, Deutsche would have to pay €14bn for its smaller rival. “There are different ways to structure this deal but it surely would not be in cash,” said a Frankfurt-based investment banker.

The fact that US private equity group Cerberus has taken minority stakes in both Deutsche and Commerzbank and has been hired as an adviser by Mr Sewing has also fuelled merger speculation.

Behind closed doors, some deal-hungry investment bankers in Frankfurt are even encouraging Mr Sewing to act quickly. “The merger should be done sooner rather than later,” said a senior banker who works for a global bank, arguing that both lenders need the cost synergies created by a merger to earn their cost of capital.

Another high-level Frankfurt-based banker working for a different global lender acknowledged that “there is no structural or technical reason why the deal could not be done within three to six months”, adding that he does not think that is a very likely scenario, because both convincing shareholders and executing a deal were significant tasks.

Making the synergies happen will require closing hundreds of branches and sacking thousands of bankers. “You’d really have to be radical here, otherwise such a deal would not work,” said a Frankfurt-based M&A banker.

With €1900bn in total assets, a merged Deutsche-Commerzbank would be the third-largest European bank after HSBC and BNP Paribas.