Photo courtesy of The Wall Street Journal. (Photo by Kai Pfaffenbach/REUTERS)
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The Commerzbank-Deutsche merger: Destined for failure

A few months ago, two world-renowned German banks considered a merger.

Deutsche Bank AG, which focuses on investment banking, and Commerzbank AG, a specialist in trade financing, faced a lot of political pressure for this 21st century stroke of economic nationalism.

It’s clear that the banks wanted to go ahead with this. Deutsche Bank AG had planned to raise about 10 billion euros in funding to restructure and meet regulatory requirements for a bigger, combined bank.

Of course, this merger, backed by the German finance ministry, would have come with its benefits and risks.  This would have put the financial stability of Europe at stake, while supporting German companies around the world.

The European Central Bank is the Euro Zone’s main banking supervisor.  If it had allowed this merger to go through, the bank’s reputation would have been at stake.

Would they have consolidated banking, or have created a fragile giant? Only time could tell.

Creating the third largest European banking group by assets is no small feat and could end up destroying the world economy.  It’s been widely known that both Deutsche Bank AG and Commerzbank AG have struggled to cut costs and find new revenue streams.

It would be extremely difficult to find new customers after the merger, as the local banking market is fully saturated already.

To deliver the necessary savings and be practical, this merger would have required cutting about 30,000 jobs. This was a major reason why unions, employees and shareholders opposed this merger.

It was also assumed that the cuts would take place in Asia, where the lack of a retail banking operation for both banks has implied a higher cost base.

However, this may not have been practical because China’s foreign investor access has been widening in the Fixed Income, Currencies and Commodities industry.

By removing their base from Asia, the banks would miss out on serious economic growth. This, along with the banks’ having different focuses, weakened the case severely for the merger being able to generate savings and promote efficiency.

It came as no surprise, then, that the banks stopped negotiations, seeing that the risks and costs were too big for these Frankfurt-based rivals to take on.