Cross-Border Deutsche Bank Merger? Not So Fast, Barclays Says
Deutsche Bank has been considering since at least mid-2018 whether to combine with cross-town competitor Commerzbank AG.
(Bloomberg) -- European regulators’ preference for Deutsche Bank AG to combine with another competitor in the region rather than its main local rival might not be the ideal solution to the German lender’s woes, given current market rules, according to analysts at Barclays Plc.
The sheer size of Deutsche Bank’s 1.4 trillion-euro ($1.6 trillion) balance sheet and stalled European Union efforts to unify the bloc’s capital markets are among potential impediments to any deal between Frankfurt-based Deutsche Bank and a financial institution outside Germany, Barclays analysts including Amit Goel wrote in a note published Thursday.
Deutsche Bank has been considering since at least mid-2018 whether to combine with cross-town competitor Commerzbank AG, a concept that German authorities are said to favor to create a national champion. European Central Bank officials would like a cross-border deal instead, as a means to drive integration in the region’s financial markets and also because local overseers see the two German lenders as too weak currently to benefit from merging, people familiar with the matter have said.
“It is not clear to us why another bank would look to merge with Deutsche Bank,” Barclays analysts said. Issues include the incremental capital requirements that a deal would trigger as well as the fact that the company only gained access in the past year to deposits at its Postbank subsidiary for use elsewhere in the group, some six years after it bought that business, they said.
Deutsche Bank was trading down 3.9 percent at 3:51 p.m. in Frankfurt in the steepest drop since Dec. 27, based on closing prices. Commerzbank slid 3.4 percent. The declines followed a statement by French counterpart Societe Generale SA earlier Thursday that fourth-quarter trading revenue probably plunged 20 percent.
Merger talk centered on Deutsche Bank is probably a sign that profitability deteriorated further in the fourth quarter, and the bank’s current strategy and target looks “less and less viable,” the Barclays analysts said. They reduced their pretax-profit estimates through 2020 by 5 percent to 7 percent and cut their share-price prediction by 13 percent to 7 euros, one of the lowest among 33 analysts followed by Bloomberg.
To contact the reporter on this story: Jan-Patrick Barnert in Frankfurt at jbarnert3@bloomberg.net
To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Tom Lavell, Jon Menon
©2019 Bloomberg L.P.