Germany's Scholz Signals Support for ‘National Champion’ Banks

(Bloomberg) -- German Finance Minister Olaf Scholz signaled support for a “national champion” in the banking industry, amid speculation that the government is seeking to drive forward a potential merger of Deutsche Bank AG and Commerzbank AG.

While he stopped short of explicitly spelling out a plan for Germany’s biggest lenders, Scholz’s comments at a Bloomberg event in London Friday are the clearest acknowledgment yet by a top official that the government is mulling all options.

It is “important to have a strong banking sector that is able to do what national champions are able to do,” Scholz said at the event. “We are very happy to have a lot of international banks acting in Germany,” he said, “but also to have a stable banking sector in Germany that is able to go with any company abroad.”

Scholz and Joerg Kukies, a former Goldman Sachs banker who serves as his deputy, have been pushing a merger of both lenders to support the small and mid-sized companies that are the backbone of the export economy, people familiar with the matter have said. Talks between Deutsche Bank and the government intensified over the past year.

“We are debating with the different banks about their situation for being able to do the necessary things when something is to be done,” Scholz said. “We’re discussing with them and with others about the situation of the banking industry in Germany. And that is our task to do that."

Scholz pushed back against a media report that the government is seeking a deal before European elections at the end of May. That deal may involve setting up a bad bank to wind down unwanted assets of both companies, potentially attracting the attention of EU competition authorities, the magazine WirtschaftsWoche reported earlier Friday.

‘Bad Bank’

“There is no debate about a bad bank,” Scholz said Friday. “There are two banks, they are doing their businesses, they are doing anything to get enough profits and things like that.”

Asked whether the timing reported by the magazine is accurate, he said that “I couldn’t imagine what the European elections should have to do with the banking sector.”

Deutsche Bank fell 1 percent at 1:14 p.m. in Frankfurt trading, while Commerzbank rose 0.8 percent. Both companies lost more than half of their market value last year as concern about their future increased.

Deutsche Bank executives believe their ability to avoid a government-brokered merger could rest on the bank’s performance in the first quarter, people briefed on their thinking told Bloomberg last month. Revenue shrank for an eighth consecutive quarter in the final months of last year, leading CEO Christian Sewing to pledge yet more cost cuts.

Imperfect Solution

Commerzbank, led by Martin Zielke, is scheduled to report earnings next week.

While a deal is viewed by some as an imperfect solution, the government thinks it will be impossible for Sewing to turn around Deutsche Bank before a potential economic slowdown exacerbates the situation, people familiar with the matter have said. Germany last month slashed its economic growth forecast for this year to just 1 percent, which would be the weakest pace in six years.

The country still owns a large stake in Commerzbank after a bailout. It doesn’t own a stake in Deutsche Bank, but representatives of Germany’s largest bank had 23 discussions with officials in Berlin since the new government was formed in March, most of them with Kukies. Sewing and supervisory board Chairman Paul Achleitner each had six exchanges, according to a Finance Ministry letter seen by Bloomberg.

©2019 Bloomberg L.P.