Deutsche Bank and Commerzbank at odds over client losses
Some companies expected to move parts of business to rival lenders in case of a merger
Deutsche Bank and Commerzbank are at odds over how many clients would ditch the Frankfurt-based rivals if they merged, highlighting one of the many obstacles to a deal that could transform the face of German banking.
Many companies in Germany are clients of both Deutsche and Commerzbank. Some of them are expected to move parts of their business to rival lenders if the merger happens to avoid becoming overly dependent on a single lender.
Deutsche’s internal estimates suggest that this would result in lost revenue of slightly more than €1bn a year, or about 3.5 per cent of the two lenders’ combined pro forma revenue of €33.5bn.
Commerzbank’s view is much more benign, however. It expects that the merged group will suffer only about half of the revenue losses its larger rival is predicting, people familiar with the matter told the Financial Times.
The more optimistic view by the smaller partner is in line with the perception among Frankfurt financiers that Commerzbank — one of the largest lenders to Germany’s so-called Mittelstand of family-owned small and medium-sized companies — is keener to strike a deal than Deutsche.
The German government — which with a 15 per cent stake in Commerzbank is its single largest shareholder — would also prefer a domestic deal rather than a cross-border one, according to people briefed on the views of Berlin officials.
Deutsche’s prediction of a large drop in revenue may feed investor scepticism about a complex deal that is likely to involve raising up to €10bn in fresh equity and is facing stiff employee resistance.
Kian Abouhossein, analyst at JPMorgan, estimated earlier this year that about 2.5 per cent of joint revenue — or just under €900m by 2021 — would disappear “due to [an] overlap in clients and businesses”. He estimated the merged group would have its “biggest overlap in Mittelstand, followed by international corporates, financial institutions and small business customers”.
Christa Remme, a Commerzbank worker council member in Stuttgart who deals with large corporate clients, said at a union rally against the deal this month that “many large customers tell us that their risk exposure [to a merged group] would be too big, and that they don’t want to be dependent on just one bank”.
Deutsche is already suffering from falling revenue and analysts expect that this year’s top line will be almost a fifth lower than in 2016. Commerzbank earlier this year ditched its 2020 growth target.
However, a person close to the merger talks said the diverging views on revenue losses were not a potential deal breaker. “In total, the transaction would be so highly synergetic that a €500m difference in revenue number would not matter at the end of the day,” that person said.
Analysts expect that a merger would generate between €2bn and €2.5bn in annual cost-saving opportunities, with lower funding costs providing an additional financial benefit to an enlarged lender