How a Deutsche Bank-Commerzbank Deal Could Happen -- Eventually

(Bloomberg) -- Deutsche Bank AG, the troubled European lender, may revisit aborted merger talks with local rival Commerzbank AG, yet such a deal could take years, require a massive capital increase and see the wipeout of investment banking that doesn’t service German clients, according to Barclays Plc.

Under a scenario outlined by analyst Amit Goel, a combination between the two German firms, which they discussed two years ago, could generate cost savings and produce a lender that poses less systemic risk to the financial system. The new company’s return on tangible equity, a measure of profit, could reach almost 9 percent by 2020, near Deutsche Bank’s stated 10 percent goal; solo, Deutsche Bank’s ROTE will reach 2 percent at best, Goel wrote.

That said, such a deal could take “many years” and would face challenges, Goel wrote. Besides shrinking the investment bank, a combination of the two Frankfurt-based lenders would have to raise almost 14 billion euros ($16.7 billion) in fresh capital from equity investors. Also, Deutsche Bank found it difficult to integrate Postbank, a previous acquisition, so “could struggle” to do the same with Commerzbank, according to the note.

“Merging with Commerzbank could realize come cost synergies,” wrote Goel, who has a sell rating on Deutsche Bank shares. “Nevertheless, this would involve significant execution risk and the benefits might not be apparent for many years.”

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