Germany's two largest banks abandon merger talks

Say deal would not have created sufficient benefits to offset risks and costs

FRANKFURT: Deutsche Bank and Commerzbank abandoned their merger talks on Thursday, with the risks of doing a deal, restructuring costs and capital demands dashing efforts to forge a German mega-bank.

After nearly six weeks of talks, Germany's two largest banks announced that their high-level negotiations about a tie-up had ended, confirming an earlier Reuters' report and raising questions about the future of the Frankfurt-based rivals.

The announcement followed a final in-person meeting early on Thursday between Deutsche Bank Chief Executive Christian Sewing and his Commerzbank counterpart Martin Zielke, two people said.

Both CEOs said a deal would not have created sufficient benefits to offset the risks and costs of a merger, which had been opposed by unions fearing 30,000 job losses, and raised concerns among investors and regulators.

While the talks are over, investors doubt either bank can go it alone for long given their low levels of profitability.

German government officials, led by Finance Minister Olaf Scholz, had pushed for a tie-up to create a national banking champion and end questions over the future of both banks, which have struggled to recover since the financial crisis.

Deutsche Bank's 2018 return on equity was just 0.4%, trailing far behind rival US, and increasingly other European, investment banks, while Zielke said this month that Commerzbank does not have the market share for costly investments, fuelling speculation of an alternative tie-up if talks fell through.

Shares in Commerzbank were 2.1% lower at 1005 GMT while Deutsche Bank's were up 3.6%.

Deutsche Bank will now face pressure to make more radical changes, such as cuts to its US investment bank as advocated by regulators and some major investors. It is already looking at a deal for its asset management unit DWS.

"Deutsche Bank will continue to review all alternatives," Germany's largest bank said.

Employees of both banks immediately welcomed the news, although a senior Commerzbank manager acknowledged it opened the door to further uncertainty as foreign competitors circle.

"It is clear that others will now come out of the woodwork with offers and ideas," the manager told Reuters.

Commerzbank Chief Executive Martin Zielke has told employees that doing nothing was "not an option".