German Finance Minister Olaf Scholz confirmed that Deutsche Bank AG and Commerzbank AG are in talks over a potential merger as the country's top two largest lenders struggle with their performance, Reuters reported.
The possible tie-up would create an entity with a 20% retail banking market share and an equity market value of more than €25.6 billion, the newswire noted. It would also create the eurozone's second-largest bank with assets totaling €1.9 trillion, according to the Financial Times. Deutsche Bank CEO Christian Sewing was said to have been forced to agree to the talks in light of persistently low interest rates and investor pressure over the lender's lackluster performance.
However, the possible merger has been met with resistance from shareholders and regulators. Deutsche Bank's top two shareholders doubt that a potential deal would lead to higher returns, people familiar with the matter told Reuters. A German banking union is also not in favor of the tie-up because of the large job cuts it would entail.
European regulators have also expressed concern that Deutsche Bank may not have the "ruthless brutality" necessary for taking over Commerzbank, unnamed regulatory officials told the FT. The officials are also worried that a failed integration process for the merger would result in even bigger problems, noting that they would only clear a deal if the implementation plan were "credible and viable."
The ECB, along with the Deutsche Bundesbank and German financial regulator BaFin, would need to approve the merger.
The implementation of a merger will be closely monitored by Deutsche Bank regulators to ensure that the execution remains on track, the FT noted.