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- The European Central Bank is adding its criticism to the idea of a tie-up between Deutsche Bank and Commerzbank.
- “I do not particularly like the idea of national champions,” the chair of the ECB’s Single Supervisory Mechanism told the Financial Times before the merger discussions were announced.
- Berlin “has become more aggressive in protecting its largest businesses from foreign pressure,” the FT said.
When Deutsche Bank and Commerzbank confirmed they were holding formal talks about a merger, critics were quick to question the wisdom of a tie-up that might lead to tens of thousands of job losses while doing little to address underlying problems at both banks.
Now, the European Central Bank is adding its criticism to the mix.
“I do not particularly like the idea of national champions, of European champions – especially when you are a supervisor, you should not promote any particular structural outcome,” Andrea Enria, the chair of the ECB’s Single Supervisory Mechanism, told the Financial Times.
Enria spoke before the two banks confirmed merger talks, the FT said on Tuesday, and didn’t say how the central bank would treat that specific deal.
The FT wrote that Berlin had “become more aggressive in protecting its largest businesses from foreign pressure” and that Enria “made clear that in all instances, the SSM would ignore any political motivations behind proposed tie-ups.”
Shares of both Deutsche Bank and Commerzbank were down about 2% as of 9:20 a.m. in London (5:20 a.m. ET).
“The only things we care about are the sustainability of the project,” he told the Financial Times.
A merger of the banks would create Europe’s fourth-largest lender, with north of €1.8 trillion, or $2 trillion, in assets and a market value of about €25 billion, according to Bloomberg.
Analysts think the combined group could slash its annual costs by more than €2.2 billion and command one-fifth of Germany’s high-street banking business. Investors cheered the news on Monday, sending the shares of both banks higher.
The chief of Germany’s Verdi labor union, however, has estimated that the deal could result in the elimination of up to 20,000 jobs – more than 13% of the companies’ combined workforces – according to Reuters. The union says there’s overlap between the firms’ retail and business customer segments, arguing international deals would suit both firms better.
Both Deutsche Bank and Commerzbank have patchy deal histories. Deutsche Bank struggled to integrate Postbank, which it bought for €6.5 billion in 2010.
Commerzbank’s troubled takeover of Dresdner Bank in 2008 meant the financial crisis hit it harder, leading to two government bailouts. Yet mergers are to be expected in a nation with close to 1,600 banks, according to The Economist.
The megadeal would also come at a difficult time. Both banks are navigating an economic slowdown in Germany – which nearly fell into recession at the end of last year – as well as the broader eurozone. A depressed backdrop could make it harder for the firms to satisfy Germany’s tough unions and comply with its strict labor laws.
Deutsche Bank’s sales fell and borrowing costs rose in the final quarter of 2018, and German officials raided its headquarters. It’s unclear how absorbing Commerzbank would help Deutsche Bank’s ailing investment-banking arm, its main earnings driver.