Merger talks between Germany’s two biggest banks have collapsed.
Execution risks, restructuring costs and the need to raise cash from investors to finance the deal would have outweighed the benefits, the banks said.
A merger would have satisfied politicians who want a national champion to provide financing for German companies. The German government bailed out Commerzbank in 2009 and still owns a stake of 15%.
A deal would have created a bank with over $2 trillion in assets, firepower that could have been used to better compete with rivals in Europe and the United States.
But labor unions were opposed, fearing a merger could result in the loss of 30,000 jobs. EU regulators may also have preferred a cross-border merger that would strengthen the region’s financial system.
Investors worried that a merger of the struggling lenders would do little to resolve questions over their strategy and profitability while creating a bank that was too big to fail.
“After careful analysis it became apparent that such a combination would not be in the interests of either bank’s shareholders or other stakeholders,” Commerzbank said in a statement.
Shares in Deutsche Bank were trading nearly 3% higher in Frankfurt after the talks were abandoned, while Commerzbank stock dipped 2%.
The door could now open for another European bank to buy Commerzbank.
Italy’s UniCredit (UNCFF) and ING of the Netherlands are both reportedly interested in pursuing a takeover, although it’s not clear whether the German government would approve of such a deal.
For Deutsche Bank, the end of talks with Commerzbank is likely to spark new questions about the future of its investment bank, which delivers volatile returns and has lost ground to Wall Street rivals. The Financial Times reported earlier this week that Deutsche Bank is in “serious” talks with Swiss bank UBS (UBS) about a merger of their asset management divisions.
The newspaper said that talks have been underway for a couple of months. One scenario reportedly under discussion would see UBS fold its asset management division into that of Deutsche Bank in exchange for shares in the German group. Doing so would help them compete with industry heavyweights such as BlackRock (BLK) and Vanguard.