Deutsche Bank Merger Will Be Assessed for Risks, Merkel Says

(Bloomberg) -- Chancellor Angela Merkel said German and European regulators will evaluate any potential threats to the financial system posed by the possible combination of Deutsche Bank AG and Commerzbank AG.

“Anything that involves a merger will very well take into account systemic risks,” Merkel told lawmakers in the lower house of parliament on Wednesday. “We know that the bigger the bank, the more capital requirements it has. All of that is regulated” by German and European authorities, she said, responding to a question on Deutsche Bank.

Merkel has been loathe to speak about the talks between the country’s two largest listed lenders, previously describing the preliminary negotiations as a private business matter. The comments come as discussions enter a critical phase, with a decision on whether to proceed expected in the coming days.

Capital Needs

Various financial regulators, including the European Central Bank, have made it clear that they will subject a deal to a rigorous review and would ask for sufficient capital buffers to ensure the stability of the combined entity.

Deutsche Bank’s trading unit -- which accounts for the lion’s share of the lender’s risk-weighted assets and ties up by far the most of its equity -- will be a focus for the ECB when it assesses the plan, people familiar with the matter have said.

The merged lender would likely have higher capital needs than the two on their own, according to a February report by credit rating firm Moody’s Investors Service. Some analysts think that the Financial Stability Board, a global financial watchdog, could assign higher capital requirements to the bank. It currently requires Deutsche Bank to hold 2 percent of capital as result of its classification as a systemically important bank.

A broad swathe of German lawmakers have come out against a deal over fears of job losses and increased financial risks. The prospective merger -- prodded behind the scenes by Finance Minister Olaf Scholz -- is a political issue by virtue of the government’s 15 percent stake in Commerzbank.

Despite the rare public comments on the negotiations, the chancellor was careful not to take a position.

“I think it’s not our place to come in with our opinions before the talks are even finished,” she said.

©2019 Bloomberg L.P.