The letter from Christian Sewing should have made for relief: the employees of Deutsche Bank and Sewing itself. "The talks with Commerzbank were very intense, constructive and characterized by mutual respect," wrote the bank boss on Thursday by e-mail its almost 92,000 employees worldwide. "Nevertheless, we have now decided not to pursue this option."
Thus, the merger drama that has been holding the whole financial industry in suspense since last summer has a temporary end. Finally, say workers' representatives who feared a reduction of up to 30,000 jobs in the event of a merger. And finally, maybe even Sewing thinks himself, who was skeptical about the merger from the beginning, but then forced by political pressure and the bad situation of their own group to fathom a merger with the competitor.
It was Sewing who did not want to go along with it at the end and broke the conversation. Too complicated and risky seemed to him the merger – and too great was the headwind of employee representatives, public and shareholders. Whether this rejection was correct is highly controversial. "He lacked the courage," say one. "He saved the bank from worse," the others say.
It is clear that the Deutsche Bank now needs a new plan. A merger with Commerzbank would have been difficult to implement and of uncertain benefit. But she would have given the financial institution, which had been in crisis for years, at least a small hope of finding out of eternal infirmity.
Now it has to try Deutsche Bank again alone – and that is extremely difficult. Just a few simple figures make it clear how bad it is about the former showpiece of the German economy:
- In the past four financial years (2015 to 2018), the bank has a total of 8.5 billion euros losses made.
- The share price has been over for the past four years dropped more than 70 percent,
- Overall, the bank is only on the stock market almost 16 billion euros value. For comparison, the largest US bank JP Morgan brings it to 333 billion euros.
Bank chief Sewing started in April of last year to bring the bank out of trouble. Above all, he is focusing on cutting costs and has bid farewell to individual investment banking businesses. But his achievements are so far rather manageable. Although the Bank managed in 2018 after three years of losses in a row again a mini-profit of 341 million euros. However, the share price development shows that this is far from sufficient for investors: since Sewing's inauguration, it has gone down by more than 30 percent.
The profit of 200 million euros in the first quarter changed little, which the Deutsche Bank announced on Thursday already fast in advance, to show what a good way to be alone. Although the number was well above the analysts' expectations – and also above the result of the same period of the previous year. But first, the first quarter is traditionally the strongest in the banking industry, where most of the year's revenue is made. And secondly, 200 million euros in profits for an institution the size and the claim of Deutsche Bank are still very little. For comparison: The US investment bank Goldman Sachs was just penalized by shareholders for "only" making $ 2.2 billion in the first quarter. That's about exactly ten times the Deutsche Bank.
"The merger was an attempt by politicians to stabilize the bank"
So what next? Experts agree that even without merger, Deutsche Bank will have to make major cuts in order to survive in the long term. "If the economy deteriorates significantly, it will be tight for Deutsche Bank," says Dieter Hein, an analyst at Fairesearch. "The merger was basically an attempt by policymakers to stabilize the bank, which has failed."
So the bank has to save itself. The talks include a further withdrawal from the US market and a shrinking of the securities trading business. The bad parts could be split off into a so-called bad bank.
Whatever the bank does, the number of employees will continue to fall dramatically. Instead of the big, fast clearcuts in case of a merger, there should now be a long way down.
And at Commerzbank?
Job cuts are likely to be an issue here as well. Overall, however, Commerzbank is doing much better. Although her boss, Martin Zielke would like to go into a merger with the Deutsche Bank – probably because his house would have played a more important role in view of the weakness of the partner than a few years ago.
But Zielke can continue without the Deutsche Bank – and will probably find other partners. With the Italian Unicredit and the Dutch ING Two major foreign banks have already registered their interest in Commerzbank. Also the French BNP Paribas is called again and again.
Does UBS help Deutsche Bank?
Although Commerzbank would definitely be a junior partner in all three variants. However, all interested parties allegedly offer so-called double-seat solutions, in which one seat of the merged institution would remain in the respective country of origin of the buyer and the other in Frankfurt.
That would be a solution that could possibly also live with the federal government, which is still a major shareholder of Commerzbank with a share of 15 percent – a remainder of the rescue operation during the financial crisis.
In the long run, Commerzbank is unlikely to be left alone.
Whether that also applies to the Deutsche Bank, is questionable. So far, no one really dares to the toxic as valid financial house ran – even if it was in the past year apparently cautious talks with the Swiss UBS and both banks currently apparently also talk about a merger of their asset management businesses.
In any case, UBS chief Sergio Ermotti said in a teleconference on Thursday that he does not think the merger fever in the European banking industry is over yet. The collapsed union of Deutscher Bank and Commerzbank "does not change the fact that sooner or later one will see a kind of consolidation in the industry," said Ermotti. Who will be there exactly, he left open.