Deutsche Bank/Commerzbank: dream team
Heroic assumptions are required to make the numbers work on analysts’ spreadsheets
Fans of underdog sports teams can feel oddly destabilised if their side starts winning. A 4.1 per cent jump in the shares of Deutsche Bank may have given some investors the same frisson. The stock has fallen by three-quarters since 2015. News of formal merger talks with rival Commerzbank might just be the moment when the luck of investors begins to turn.
Just as US banks benefit from a strong home base, a combined group could prosper from serving Germany’s powerful exporters. Deutsche’s barely profitable investment bank would focus on that goal after shrinking. Retail and commercial divisions would be boosted by economies of scale.
Berlin might retain a 5 per cent stake. Federal politicians would have an interest in making the deal work in a market where the plethora of savings and co-operative banks erode lending margins.
One tiny difficulty: the numbers do not stack up. Because Deutsche would acquire Commerzbank for less than it is theoretically worth — it trades at just 0.4 times tangible book value — the combined bank would book a gain. But perhaps €10bn or more would have to be raised for restructuring costs and to strengthen the balance sheet.
Heroic assumptions are required to make the numbers work on analysts’ spreadsheets. Commerzbank’s shareholders might have to sell control for no premium. Tough German trade unions might have to agree 30,000 job losses with a nod and a wink. Deutsche bosses, whose record is hardly exemplary, would have to execute a complex integration.
Politicians and the banks’ supervisory boards will not look too closely at spreadsheets. They will worry about which bank will stand by German companies in the next financial crisis. More cheerfully, they will imagine higher eurozone interest rates restoring margins on core lending businesses. They will dream of a national champion bolstering the economy and leading European bank consolidation. One day.