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Regulator vows neutrality as critics query state role in Deutsche-Commerz talks


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According to Market Intelligence, April 2023

Regulator vows neutrality as critics query state role in Deutsche-Commerz talks

Amid mounting questions about the German government's role in the potential merger of the country's largest private lenders, a senior executive at Germany's central bank has emphasized the regulator's neutral role in assessing bank mergers.

The German central bank does not initiate or design bank mergers but only assesses such transactions after the boards of the credit institutions have presented a plan, Bundesbank executive Joachim Wuermeling said March 19.

"Owing to recent events, I feel it is important today to say that we supervisors are neutral when it comes to bank mergers," he said, speaking at the annual Bundesbank symposium on bank supervision.

Deutsche Bank AG and Commerzbank AG confirmed March 17 that the two groups have started exploratory talks about a tie-up.

This is largely seen as a result of pressure applied by Berlin, with Finance Minister Olaf Scholz holding a string of meetings with both banks in the course of 2018. Scholz has spoken about creating a strong national bank and strengthening the German financial sector since he took office in March 2018.

However, people across the German political spectrum have expressed concerns about a potential conflict of interest given that the government still holds a 15% stake in Commerzbank, a holdover from a bailout during the financial crisis.

Conflict of interest

Most recently, German parliament lawmaker Fabio De Masi questioned the choice of Goldman Sachs Group Inc. as Commerzbank's adviser on the potential merger with Deutsche, Reuters reported March 19. Goldman is the former employer of Germany's Deputy Finance Minister Joerg Kukies who has previously spoken in favor of a merger between the top two German banks alongside Scholz.

A spokesman for Kukies has rejected any alleged conflict of interest because Kukies had never been directly involved in bank advisory services at Goldman Sachs, Reuters said.

In her first comment on the potential merger, German Chancellor Angela Merkel said the government will not get involved with a vote in the exploratory talks between Deutsche and Commerzbank, Handelsblatt reported March 19. The banks alone must make the decision whether to merge and must assess all challenges, opportunities and risks related to a deal, Merkel said, according to Handelsblatt.

Andrea Enria, the new head of the ECB's Single Supervisory Mechanism, criticized Berlin's involvement in a potential merger in a Financial Times interview March 19 and said he does not like the idea of banking "champions" on a national or European level. Supervisors especially should not show favoritism in such transactions, according to Enria.

While he did not refer to the merger of Deutsche and Commerzbank directly, Wuermeling stressed the Bundesbank's complete separation from any decision-making process.

"We may monitor such processes, but we certainly do not initiate them," he said. It is required by law that the supervisor step in to approve a merger and ensure that all regulatory requirements have been met and will be met in the future. Therefore, all assumptions and projections in the merger plan submitted by the credit institutions are analyzed thoroughly, Wuermeling said.

All parties directly involved in such transactions can rest assured that the Bundesbank's participation is constructive and critically applied, he noted. The Bundesbank bears responsibility to the public to ensure stability, solidarity and security in the consolidation process, Wuermeling said. The central bank takes this responsibility seriously, he added.

Wuermeling is responsible for banking and financial supervision, information technology and risk control at the Bundesbank.