Deutsche Bank Chairman Says Size Matters Amid Merger Talks

(Bloomberg) -- For Paul Achleitner, a bigger bank is a better one.

The chairman of Deutsche Bank AG’s supervisory board should know. He’s the most senior official at Germany’s largest bank, which is now figuring out whether or not to merge with rival Commerzbank AG to form what some think could be a Germany ‘national champion.’

The problem for European banks is “perhaps not ‘too big to fail’ but ‘too small to scale’,” Achleitner said at a conference in Vaduz, Liechtenstein on Wednesday, adding that in the finance industry “size matters.” He declined to comment on the merger specifically, saying that it will update investors on the deal by the time it reports first quarter results.

Germany’s largest lender has been in formal talks about a tie-up with the country’s second-biggest bank for the past ten days. The talks are focused on areas including cost cuts and where to make them, balance sheet risks and job losses, people familiar have said.

“We will have to see if Deutsche Bank can contribute to consolidation in banking,” Achleitner said on Wednesday.

The prospect of a merger between the two banks, which failed for years to achieve acceptable levels of profitability, is dividing opinion. Proponents say that cost cutting and the increased scale of a combined bank could help overcome the problem. Critics point to massive execution risks and say that the banks’ weakened state means they’re unfit to go through yet another large-scale restructuring.

Funding Costs

Reduced funding costs for Deutsche Bank could be another benefit as the new entity would have a larger pool of bank deposits that it could use to fund its other activities, according to analysts. The elevated price the lender needs to pay investors to buy its bonds as well as the risk of a downgrade of its credit rating to sub-investment grade are particular sources of concern for Achleitner, people familiar with the matter have said.

The German Finance Ministry is widely seen as a driving force behind the deal to create a more stable bank that can continue to provide credit to the country’s export sector in a potential downturn. But Achleitner said in Liechtenstein that Finance Minister Olaf Scholz never applied pressure “in any way or form” on him or Deutsche Bank’s management board.

Achleitner has been chairman of Deutsche Bank for almost seven years and the lender’s stock price has declined almost 70 percent over that period. Critics of his tenure say he’s at least partly responsible for the bank’s several botched turnaround efforts. Achleitner’s response has been that it’s the duty of the management board -- and not of the supervisory board -- to set the company’s strategy.

The banks’ management boards will make the decision whether or not to go ahead with the merger though the supervisory board will “assist” them, Achleitner said.

As chairman, one of Achleitner’s responsibility is to liaise with the bank’s shareholders. The biggest of them, several members of the Qatari royal family, are wary of the merger with Commerzbank while the fourth biggest, the private equity firm Cerberus, is in favor, people familiar with the matter have said.

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