Deutsche Bank AG has agreed to begin merger talks with Commerzbank AG, Deutsche Bank CEO Christian Sewing said in a letter to employees.
The official statement comes days after Germany's finance minister, Olaf Scholz, said the country's two largest banks were engaging in the discussion. A media report earlier in March stated that the two banks were discussing a deal.
"I have consistently stressed that consolidation in the German and European banking sector is an important topic for us," Sewing wrote. "We have to assess how we want to play a part in shaping it."
The CEO cautioned that there was no certainty a deal would arise from the talks.
A tie-up between the German banking giants would conclude a years-long saga for the companies, which have struggled in the aftermath of the global financial crisis. Shares of both companies have fallen more than 90% since 2007, and more recently, efforts to hit ambitious performance targets at the banks have faltered.
Sewing was tapped at Deutsche Bank in 2018 with a broad mandate to turn the company around, but his early days were defined by layoffs. Analysts have questioned whether the Deutsche Bank investment banking division can pull its weight.
At Commerzbank, CFO Stephen Engels said in February the bank will be unable to achieve return-on-equity and cost-ratio targets it hoped to hit by 2020.
Still, combining the banks would result in a new European banking giant with roughly €1.81 trillion in assets, according to S&P Global Market Intelligence's year-end 2018 asset data.
Such a deal has been supported by the German government, which continues to hold a substantial 15% stake in Commerzbank.
"Our stated aim remains to be a global bank with a strong capital markets business — based on a leading position in our home market in Germany and in Europe, and with a global network," Sewing said.