Deutsche Bank is preparing for a potential merger of the government with a rival Commerzbank by the middle of the year, as it is time for them to cancel the results for the largest bank in Germany, reports Bloomberg.
Managers who are preparing to announce the results of the fourth quarter on a difficult Thursday are concerned that such a deal may remain the only chance if there is no improvement in the first three months of 2019. The bank warned that the last months of last year had suffered from a police operation in November, which had complicated the market environment.
Chief Executive Christian Schwing called for patience with his current plan, focusing on cutting costs and increasing efforts to stabilize market share, but lately negotiations between the lender and the government have intensified. Years of unsuccessful restructuring led to a drop in bank income, which can hardly be reversed. This gave rise to rumors that he would soon be forced to unite with Commerzbank in order to increase his market share and reduce costs in a competitive, highly competitive domestic market.
Although the largest investors in the bank continue to support Shuiing, they are not satisfied with the losses they have suffered, according to people familiar with this issue. Shares lost more than half of their value last year before they recovered some of these cuts this year.
“If this is true, the economic situation in Deutsche Bank should be worse than in the outside world,” said Andreas Plezeier, M.M. Warburg. "The merger with Commerzbank currently does not make sense because it offers few opportunities for customer growth."
While the deal is perceived by some as a wrong decision, the German government believes that Schwing will not be able to make the situation worse for the bank before a possible economic downturn, people familiar with the government’s position say. Berlin lowered its forecast for economic growth this year on Wednesday to just 1%, which will be the slowest rate in six years.
The country still holds a large share of Commerzbank in salvation. He does not have a stake in Deutsche Bank, but Finance Minister Olaf Scholz has repeatedly stated that he wants strong international banks to be supported by German export-oriented companies.
Since the formation of the new government in March, representatives of the largest German bank have held 23 debates with officials in Berlin, most of them with Deputy Minister of Finance Joerg Kukis.
Schwing excludes the possibility of mergers until 2020, but also says that he will have to change his strategy earlier if his plan fails. Many employees of Deutsche Bank and the German government approved the merger with Commerzbank as the best option.
Analysts polled by the bank expect the eighth consecutive decline in bank profits in the fourth quarter.
However, the bank can count on at least one major shareholder. Deutsche Bank has agreed on a commitment to new investment from Qatar, which already has significant assets in the bank. New investments are likely to be made through the state’s state fund.