When Two Become One

Deutsche Bank and Commerzbank announce merger talks

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What's going on?

According to reports on Sunday, German banking titans Deutsche Bank and Commerzbank will shortly begin formal discussions about a potential merger.

What does this mean?

Both banks have struggled in recent years. At Deutsche, a new CEO last year tried to refocus the bank on savings and loans (a.k.a. commercial banking) instead of riskier investment banking to little avail – and amid money laundering accusations. Commerzbank, meanwhile, sold off parts of its business last year – it wants to keep only essential activities in an ongoing attempt to lower costs and increase profits.

Combined, Deutsche-Commerzbank would be Europe’s fourth-largest bank – and should have enough financial clout to compete more effectively with rivals in Germany and beyond (tweet this).

Why should I care?

For markets: German authorities seem to like the idea.

The German government owns more than 15% of Commerzbank’s shares, perhaps explaining why it’s been willing to offer political support to help bring the deal to fruition. Such support could come in the form of allowing as many as 20,000 job cuts from the 140,000-strong workforce between the two banks, according to some analyst projections. Removing duplicate costs, like certain jobs, across the combined firm should help it improve profits. Worker unions, however, strongly oppose the tie-up if it’ll lead to job losses. And others argue that there’s no guarantee a merger would actually improve either bank’s fortunes, given the distraction caused by multiple years of integration and restructuring that’d follow.

The bigger picture: Regulators be regulating.

Deutsche and Commerzbank may need to sell off parts of their combined business in order to satisfy competition regulators – for the benefit of consumers. Hot on the heels of a record-breaking year, German insurer Allianz is reportedly considering merging its investment management business with Deutsche Bank’s, which may shortly be up for grabs. More than ever, bigger is better in asset management…

Originally posted as part of the Finimize daily email.

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