After years of failed turnaround attempts, the once dominant German financial institution Deutsche Bank is currently negotiating government-backed merger talks with Commerzbank AG.
This move arose in the wake of massive job cuts, political turbulence, a weakening European economy, U.S. probes into its dealings with Donald Trump and a herculean integration – not to mention skeptical clients and investors.
Further, the persistent struggle of both banks to restore revenue growth, along with an economic slowdown that has pushed back expectations for higher earnings, have added to the urgency of the merger.
Problem is, this merger could risk as many as 30,000 jobs.
Formal talks will only start after the government signals its non-interference in the way of necessary job and cost cuts. The merger of these two century-old entities, if successful, will have a combined market value of about 25 billion euros and would give birth to Europe’s fourth-largest lender with assets worth ~1.81 trillion euros ($2.05 trillion). It is suspected that Deutsche Bank, being the larger of the two, would probably be the acquirer.
Merger talks had already begun but were stalled in 2016. Today's talks have a greater sense of urgency, however, as Commerzbank has dropped most of its 2020 financial targets after cutting its revenue outlook. Within Deutsche Bank, doubts are growing that it will be able to reach its goals. Further, the recent decision by the European Central Bank to push out the much-awaited first interest rate increase has exacerbated the situation, as both banks have said that they will struggle to meet their long-term profitability target in the current low interest rate environment.