Germany seeks Deutsche Bank merger plan by May

A preliminary decision could be made over the coming weeks in confidential talks between the banks’ chief executive officers, as German Finance Minister Olaf Scholz pushes for an agreement, the weekly magazine reported without identifying the sources of the information.

A merger may involve setting up a wind-down bank for unwanted assets of both companies, which could be interpreted as state aid and attract the attention of EU competition authorities, WirtschaftsWoche reported. If a decision isn’t made before European Parliament elections at the end of May, a deal may not happen, according to the publication.

Scholz and Joerg Kukies, a former Goldman Sachs banker who serves as his deputy, have been pushing a merger as both lenders still struggle to turn around their businesses a decade after the financial crisis, people familiar with the matter have said. The goal would be to create a national champion to serve the small and mid-sized companies that are the backbone of Germany’s export economy. The plan is also aimed at avoiding another government bailout should the economy turn.

Deutsche Bank fell 1.3 per cent in Frankfurt trading, while Commerzbank was little changed. 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 week. Revenue shrank for an eighth consecutive quarter in the final months of last year, leading CEO Christian Sewing to pledge yet more cost cuts.

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 per cent, 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 talks between the lender and the government intensified over the past year. 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.