Germany's two largest listed lenders, Deutsche Bank and Commerzbank, announced to begin exploring a merger on March 17th. If the merger happens, it would create Europe's third-biggest bank by assets, behind Britain's HSBC and France's BNP Paribas. It would also join together two underperforming banks, as Deutsche ROE finally reached positive figures (0.4%) after four years and Commerzbank's weak 3% only once after eight years.
Years of ultra-low interest rates and overcrowded banking market crippled profitability although both banks are well-capitalized and adequately liquid. A merger is unlikely to change that. For Germany, combining Deutsche Bank and Commerzbank would create a new national champion lender that could support the country’s huge export industry and compete for international business with the giant Wall Street banks. For the lenders, it offers the opportunity to gain financial scale, cut costs and combine technology.
However, analysts have questioned whether fusing the two banks would simply create an even bigger problem.Commerzbank and Deutsche Bank are among the least profitable banks of their size, primarily because they are too large and unwieldy in relation to the revenue they generate.
Sources :
The Economist
Bloomberg
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