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Given the operational weakness of both banks, and a challenging home market, a deal looks unlikely to be transformative, either for customers or shareholders. Aside from some obvious savings — from closing branches and eliminating jobs — the deal’s protagonists appear motivated by a desire to cut their losses, reputationally or in hard-invested cash.
Government ministers have talked obliquely about the benefits of having a national champion. But Berlin’s keenness on a Deutsche-Commerzbank combination seems also to be founded on a rationale of precaution. The 35 per cent decline in Deutsche Bank’s share price in the past year, combined with alarmingly high bond financing costs in recent weeks, appear to have sharpened the German government’s resolve to be prepared for the worst.
Even the most bearish investor is not predicting Deutsche’s demise. Indeed there have been some signs of operational progress in recent months. But given the bank’s scale — it still has assets of more than €1.3tn — the government’s systemic concerns are understandable.
Combining with Commerzbank, in which the government still has a 15 per cent stake acquired during a 2008 bailout, would allow Berlin into the Deutsche shareholder register through the back door — an insurance policy that would allow fresh capital to be injected swiftly in case of disaster, albeit with state-aid restrictions and penalties.
For the architects of the laudable post-crisis attempts to deal with “too-big-to-fail” banks, such logic is clearly a kick in the teeth. Central to that regulatory reform effort has been the obligatory issuance of “bail-inable debt” that would give the world’s big banks far greater “total loss-absorbing capacity”, or TLAC in the regulatory parlance.
Full article on Financial Times (subscription required)