Deutsche Bank CEO Christian Sewing has dismissed the idea of pursuing merger and acquisition (M&A) activity, dampening speculation about the future of its domestic rival Commerzbank. Despite concerns about bank profitability and rumors of the German government selling some of its company stakes, Sewing has made it clear that M&A is not a priority for his group at the moment.
In 2019, Deutsche Bank and Commerzbank abandoned their merger plan. However, reports of a possible tie-up between the two banks have resurfaced recently due to lingering concerns about profitability and the German government’s willingness to sell its 15% stake in Commerzbank. While a merger would create a combined entity with around $2 trillion in assets, Deutsche Bank’s low valuation poses a challenge. With shares trading at only around 12 euros per share, a significant markdown of assets would be necessary.
During an interview with CNBC at the World Economic Forum in Davos, Switzerland, Sewing downplayed the rumors of a potential merger. He emphasized that M&A in the banking industry, particularly in Europe, should happen when certain preconditions are met. These preconditions include regulatory considerations and the finalization of the banking union.
Sewing also pointed out that the recent increase in interest rates and the mortgage books of many banks need to be taken into account when assessing fair value gaps. He stated that, given these factors, pursuing a merger with Commerzbank is not a priority for Deutsche Bank this year. Instead, he believes they should focus on their own business.
Sewing highlighted the significance of the European Banking Union, which was established in 2014 to ensure the stability of the bloc’s banking and financial systems. The banking union provides a regulatory framework for the supervision and resolution of banks in the Eurozone. However, recent setbacks, such as the Italian parliament voting down reforms to the European Stability Mechanism, have hindered the implementation of certain aspects of the banking union. This has further emphasized the need for a stronger common safety net within the Eurozone.
Sewing reiterated that Deutsche Bank is currently focused on its own business. While he acknowledged that M&A may be a future consideration for the banking industry, he emphasized the importance of meeting regulatory preconditions and addressing fair value gaps. With the European Banking Union still facing challenges and Deutsche Bank’s low valuation, pursuing a merger with Commerzbank is not a top priority for the bank at this time. Sewing’s comments suggest that Deutsche Bank will continue to concentrate on improving its own financial standing and navigating the evolving banking landscape.
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