What’s Next for Deutsche Bank and Commerzbank?

(Bloomberg) -- The big German banking merger is dead. Deutsche Bank AG and Commerzbank AG ended talks on a possible combination on Thursday, raising many questions for analysts about what’s next for the two lenders.

Shares of Deutsche Bank initially jumped on the news, rising as much as 4.8 percent before erasing gains to trade down 0.3 percent as of 1:15pm CET. Germany’s largest lender also pre-announced its quarterly numbers, saying it sees net income of about 200 million euros ($223 million), ahead of its official release on Friday before markets open. Commerzbank shares are down 2.4 percent.

So, what now for both lenders? According to analysts, Deutsche Bank should focus on solving its declining revenues, while Commerzbank could attract bid interest from others.

What’s Next for Deutsche Bank and Commerzbank?

Here’s what analysts are saying about the end of the talks:

JPMorgan (Kian Abouhossein)

  • Deutsche Bank requires further restructuring; sees bank shaking up the equity business and reducing assets further
  • Lender needs to take further steps in reducing costs
  • For Commerzbank, sees an acquisition of the bank as the most likely outcome, with media reports pointing to interest from ING and UniCredit

Bankhaus Metzler (Jochen Schmitt)

  • Deutsche Bank’s strategy is unclear; the bank should fix the issues of declining revenues and relatively high costs on its own
  • Would prefer the bank to decide on a strategy and focus on execution in the near-term future, rather than opening new discussions about further strategic changes

KBW (Thomas Hallett)

  • Deutsche Bank’s continued review of the business signals a failing of its strategy and the need for alternative action
  • End of talks is initially positive given the level of risk associated with such a deal
  • Deutsche Bank generates minimal free cash flow on a standalone basis, creating limited capacity to support growth initiatives and restructure operations

Credit Suisse (Jon Peace)

  • The outlook for Deutsche Bank will depend on the quality of the operating numbers and the credibility of its alternative plans for raising profitability
  • Commerzbank’s future path will depend on whether other banks show interest in a merger and on delivery of its revenue and cost targets

CMC Markets UK (Michael Hewson)

  • Collapse of talks shouldn’t be a surprise
  • Merger wouldn’t have resolved the underlying problem of how to fix Deutsche Bank itself, which remains a long way from dragging itself back to health
  • The end of talks will reopen speculation about a possible bid by UniCredit for Commerzbank

For more coverage of the end of the deal talks, see:

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