Deutsche/Commerz talks put pressure on Germany’s Olaf Scholz
Finance minister’s apparent support for merger could backfire
Berlin’s poltical class calls it the “Scholz trap”: the predicament that Olaf Scholz, Germany’s finance minister, is in a month after the official start of merger talks between Deutsche Bank and Commerzbank.
Mr Scholz is seen as instrumental in bringing about those talks, yet a tie-up could prove politically toxic for him.
“He is in a precarious position,” said one senior official in Berlin. “If the deal collapses, he will be seen as a loser. If it works out, he will get the political blame for all the job losses.”
Mr Scholz has always denied being the driving force behind the idea of uniting Germany’s two largest listed banks. Officials insist it is a decision for the banks’ shareholders and management, not the government.
But with his talk last year of creating a “national banking champion”, it was clear that — at the very least — the idea had his tacit support. In January, it was revealed that he and his deputy Jörg Kukies, a former Goldman Sachs banker, had spoken with Deutsche Bank representatives 23 times last year.
It was no surprise, then, that when the start of talks was announced, he immediately became the main target of the wave of negative reaction that ensued. That could be highly damaging for a man who has ambitions to be Germany’s next chancellor.
“I don’t understand how a Social Democrat can try to engineer such a merger when it’s clear it will cost at least 30,000 jobs,” said Frank Schäffler, an MP from the liberal FDP party who is a member of the Bundestag finance committee.
Even Mr Scholz’s own party is sceptical. “A tie-up will be a big mistake if it is accompanied by a massive reduction in headcount,” said Lothar Binding, an SPD MP and an expert on banking. “And that seems to be where we’re heading right now.” Unions led by the 2m-member service-sector union Verdi have already staged protest marches.
Mr Scholz fired the starting gun on a big shake-up of banking with a speech in Frankfurt last August. He complained that German banks “don’t have the scale and global reach” needed to accompany German companies abroad, and called for an “industrial policy” for the banking sector.
The background to the speech was mounting concern in Berlin about the weak state of Germany’s two leading lenders, particularly Deutsche, whose share price has slumped and funding costs costs have risen over the past year. Concerns were also expressed that Commerzbank — and even Deutsche — might be taken over by a foreign rival.
It would have been “negligent” for policymakers not to consider possible remedies, “including M&A scenarios”, said one senior German regulatory official.
Yet he insisted that Mr Scholz “never crossed any lines”. The finance ministry did not “order” the two banks to merge — “they simply pressed them to seriously evaluate the pros and cons of such a deal, and to keep an open mind,” he said.
But Mr Scholz’s team also hoped that a merger could cement his image as a can-do problem solver.
“He has a track record of doing the right thing,” said one person familiar with his thinking. “He does things that are necessary — structural reforms that are needed.”
Scholz fans point to his success with the Elbphilharmonie, a concert hall in Hamburg wracked by cost overruns and delays. As mayor of Hamburg he steered the €866m project through to completion.
“After sorting out the Elbphilharmoie, he seems to think he can even fix Deutsche Bank and Commerzbank,” a banking insider quipped.
Yet his activist approach has raised hackles in Berlin. “Right from the start there has been this impression that politicians were pushing for a merger, and that’s always a bad thing, because they should keep out of such matters,” said Hans Michelbach, a senior conservative MP.
Reactions like these underscore the deep hostility in Germany towards the kind of interventionist economic policies that are commonplace in neighbouring France. To some, Mr Scholz seemed to be flouting the basic principles of “Ordnungspolitik” — the idea that the state defines the rules for the private sector but never gets involved in corporate decision-making.
Otto Fricke, another FDP MP, said Mr Scholz had committed a “massive political blunder” by pushing the idea of a national banking champion so forcefully. “He is pursuing a French model of industrial policy, which has largely failed,” he said.
Some regulators also came out against a merger. Raimund Röseler, head of banking supervision at the regulator BaFin, told German media that consolidation was “no panacea” for problems in the sector.
Still more dangers loom for Mr Scholz. Deutsche’s managers have been discussing a capital increase of up to €10bn to finance the merger. The German state, which owns 15 per cent of Commerzbank, would have to put fresh money in if it wanted to keep its stake in the enlarged group at about 5 per cent.
“The idea that German taxpayers would have to take part in the capital increase of a German bank that is the epitome of capitalism — that’s pretty bold,” said Mr Schäffler. ”It would be an Armageddon scenario for the Social Democrats.”