ECB Officials Question Logic of Deutsche Bank-Commerzbank Deal
ECB Officials Question Logic of Deutsche Bank-Commerzbank Deal
(Bloomberg) -- Deutsche Bank AG and Commerzbank AG are facing intense skepticism from top European regulators about whether a combination would put the two lenders on safer footing, according to people familiar with the matter.
Several members of the European Central Bank’s supervisory board questioned the logic of a merger at recent meetings, said the people, who asked to remain anonymous because the deliberations were private. Officials are concerned that the ECB’s credibility will suffer a major blow if they approve a deal and the merged bank then runs into trouble, they said.
Deutsche Bank Chief Executive Officer Christian Sewing and Commerzbank CEO Martin Zielke started formally discussing a takeover last month after their separate turnaround plans failed to convince investors. While the banks are in contact with their regulators, they have yet to submit a formal plan for the ECB to review, according to people familiar with the matter. Opposition to a deal has been increasing, both inside the bank and across the political spectrum.
Whether the lenders would have to raise fresh capital for a deal depends on how it is structured, according to one of the people familiar with the matter. However, another official said that even if they raise funds, that won’t be sufficient to sway regulators if they don’t consider the business case to be convincing.
Officials for the ECB and the banks declined to comment.
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A deal would mark the biggest test to date for the ECB’s supervisory arm since it started overseeing lenders less than five years ago. Calls for banking consolidation in the region have increased in recent years, as lenders struggle to compete with Wall Street peers among negative interest rates and a fragmented market that makes cross-border deals difficult.
ECB President Mario Draghi said at a news conference in Frankfurt on Wednesday that banks should stop complaining about negative rates and focus on improving profitability. The “banking system in Europe is overcrowded” and the “need for consolidation is very, very significant,” he said, adding he didn’t have a “clear preference” on whether it would be more beneficial for lenders to pursue cross-border combinations or domestic ones.
As a supervisory authority, the ECB has to maintain a neutral stance and assess each project put forward by banks purely on technical grounds. Its supervisory board is made up of representatives from national regulators as well as ECB officials. Their views matter because bank mergers generally require the ECB’s approval.
The watchdogs’ wariness in part reflects a difference of opinion on whether banks are no longer too big to fail, according to the people familiar with the matter. German officials assert that regulation put in place after the 2008 financial crisis sufficiently tackles the issue. Their counterparts in other countries worry that the safeguards don’t yet fully function in practice, said the people.
A combined Deutsche Bank-Commerzbank would be the fourth-largest lender in Europe, with about 1.8 trillion euros ($2 trillion) in assets. HSBC Holdings Plc in the U.K. and France’s BNP Paribas SA and Credit Agricole Group would still be bigger.
In a recent post on its website explaining its role in mergers, the ECB said it “has no bias against size and does not discourage banks from becoming bigger on principle.” The central bank also cited the fact that big international banks are now required to hold more capital and loss-absorbing buffers than before the crisis.
--With assistance from Steven Arons.
To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net
To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Christian Baumgaertel
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