Since the beginning of September 2016 there has been stubborn speculation over a merger between Deutsche Bank and Commerzbank. On taking office in April 2018 Deutsche Bank’s new CEO, Christian Sewing, virtually excluded a merger between the two major banks for the next twelve to eighteen months, citing the current integration of Postbank and the group’s ongoing restructuring as the reasons. While these arguments are still valid today, the political and possibly also the commercial pressure now seems great enough for informal talks to be conducted with respect to a possible merger between the two banks.
The positive effects of merging these two big banks could be: 1. The scalable investment costs for technology and digitalization. 2. The substantial potential cost synergies resulting from similar business fields. 3. A possible transfer of customer deposits within the group.
Arguments against it include: 1. Higher capital requirements due to size. 2. The contradiction related to the “too big to fail” problem. 3. The high implementation risks (among other things downsizing, IT integration). 4. Significant complexity costs. 5. Substantial revenue dis synergies with respect to overlapping customer groups. 6. Due diligence problems with respect to soft factors such as legal and operational risks. 7. The ongoing restructuring of the two groups, both of which are not particularly profitable. 8. The IFRS valuation of the balance sheet of the acquired bank at market value instead of book value.
From today’s point of view, a merger of these two major banks would probably have only a small positive impact on the profit of the combined unit – and this also only after several years. In order to finance such a transaction and the high restructuring costs associated with it, either a capital increase would have to be carried out or equity investments would have to be sold. The two banks will find it hard to resist the pressure from the politicians, who would like to create a national champion in the banking sector. But one may cast at least some doubt on whether politicians are qualified advisors here.