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Deutsche/Commerzbank merger not seen likely any time soon

A potential merger between Germany's top two private lenders Deutsche Bank AG and Commerzbank AG is not likely to happen any time soon given that both banks are each in the middle of multiyear restructuring programs, according to analysts.

Deutsche Bank has been a focus for the European financial press over the past two months after it dismissed its former CEO John Cryan in early April and made changes to its five-year strategic plan for the third time since its launch in 2015. Weak first-quarter results released in late April and a stormy annual general meeting in late May, coupled with jittery capital markets, saw the group's share price drop to an all-time low May 31.

Statements by new CEO Christian Sewing and CFO James Von Moltke aimed at reassuring investors that Germany's biggest lender can deliver on its strategic targets and achieve a turnaround by 2022 did little to help the bank's shares, which also suffered a drag from a generalized retreat in European financial stocks amid nervousness over Italy's new anti-establishment coalition.

Looking for solutions for the troubled lender, Deutsche Bank's supervisory board chairman Paul Achleitner has recently revisited the idea of a merger with Commerzbank and has discussed it with shareholders and representatives of the federal government, which still holds a 15% stake in Commerzbank, Bloomberg reported June 7. The German government has declined to comment on the report, Reuters said June 8.

A Deutsche Bank spokesman told Reuters June 7 that the chairman is constantly asked about a potential merger and that he had never felt the need to discuss it any further.

While a potential combination between Deutsche and Commerzbank has been a recurring topic in the media over the past few years, it is not likely to lead to more than talk anytime soon, Rabobank Research analysts wrote in a June 8 note. "[...] Any short-term action is unlikely, especially as both banks are now focusing on their restructuring efforts," the credit analysts wrote. "It would have been an important step towards consolidation of the German banking sector though, whilst the banks could extract synergies, especially in the domestic market. However, this looks to be a largely theoretical exercise at the moment."

Merger talks have remained informal until today and a decision to launch formal talks would "probably also not be taken lightly, considering the potential job losses involved with such a merger," ING credit analyst Hendrik Wiersma said in a note June 8. Wiersma noted that Deutsche Bank's credit spreads remained "elevated" compared to Commerzbank's.

One of Deutsche Bank's key strategic objectives for the next three years is to expand the share in group revenues of its newly merged private and commercial banking unit, which serves retail banking clients. This plan includes a bigger focus on the German retail banking market, where Commerzbank is among the most relevant players. Commerzbank's strategy for future growth is largely based on a rapid acquisition of retail banking and small business clients in Germany.

Deutsche Bank was trading down 1.46% at €9.48 at 15.50 p.m. CET on Frankfurt's electronic trading platform Xetra, while Commerzbank was down 2.21% at €9.26 at the Xetra around the same time. The German benchmark Dax index was 0.43% higher.