Commerzbank CEO Zielke Reopens Door to M&A in Growth Quest

(Bloomberg) -- Commerzbank AG is opening the door to another deal after the collapse of merger talks with Deutsche Bank AG last month.

Chief Executive Officer Martin Zielke said at the bank’s annual general meeting on Wednesday that the lender is considering options other than organic growth as part of a strategy review to be unveiled in the fall. In other words -- and without naming names -- that means the German bank may consider merging with another European or domestic rival to boost growth and profitability.

Commerzbank has attracted interest from European banks including ING Groep NV of the Netherlands and Italy’s UniCredit SpA since ending talks with Deutsche Bank, according to people with knowledge of the matter. The two banks have lined up deal advisers as they prepare for talks, the people said. Zielke said at the AGM that he’s met ING CEO Ralph Hamers twice in the past year, though hasn’t received any concrete proposal to start talks.

The Deutsche Bank AG talks have shown that we “possibly should sharpen our strategy,” Zielke said at the meeting in Wiesbaden, Germany. He said that the lender isn’t happy with current levels of profitability and vowed it would work hard to boost it.

The CEO, who received the backing of 99.8% of shareholder votes at the meeting, reiterated that the bank expects to give investors a strategy update in the fall, without revealing any potential details of the new plan. The current strategy is “apt,” he said, indicating that there may be no major changes.

Commerzbank could also opt to buy a smaller bank in Germany. It was interested last year to bid for regional lender NordLB though it ultimately backed away from the idea, people familiar with the matter said at the time. There recently was media speculation that the owners of another regional bank, BayernLB, may be warming up to the idea of a sale.

Eroding Profitability

Zielke is more than halfway through a four-year plan to pivot away from investment banking and build up lending to retail and corporate clients. But negative interest rates and competition are eroding profitability, even as the CEO can point to the jump in customer numbers and lending volumes as signs of progress. Earlier this year, he discarded most of the plans targets as revenue failed to pick up.

ING and UniCredit have held on-and-off again talks with Commerzbank, though no formal negotiations are ongoing, people familiar with the matter said earlier this month, adding that the process could take months.

Zielke said during the talks with Deutsche Bank that a merger would help Commerzbank gain the market share necessary for costly investments to pay off. But he has since stressed that the bank has a future even if it remains independent.

Commerzbank may need to intensify cost cutting and tap additional sources of revenue growth if it wants to achieve an adequate level of profitability. “Otherwise independence, capital market access and share price performance could be at risk,” UBS analysts led by Daniele Brupbacher said in a recent research note.

To contact the reporter on this story: Steven Arons in Frankfurt at sarons@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Christian Baumgaertel

©2019 Bloomberg L.P.