German officials have advocated for a merger between Deutsche Bank and Commerzbank amid concerns over the lender's financial stability, according to a 2019 report. The proposed combination could create a significant financial shortfall due to asset revaluation requirements under German law, with officials estimating potential losses in the billions of euros.
The German government, which holds a 15% stake in Commerzbank, is considering the merger as a solution to Deutsche Bank's ongoing challenges. A senior official highlighted that the bank's 2016 crisis left it in a vulnerable position, with lingering risks to the financial system. This follows Deutsche Bank's 2018 announcement of returning to profitability after years of losses.
Rating agency Moody's has warned that a merger could lead to a "downward valuation adjustment" for parts of Commerzbank's asset base. Officials also emphasized the need to reduce branch numbers in an overcrowded market, noting that Germany's strong job market would ease staff cuts. However, experts have raised concerns about the merger's impact on financial stability and European competition principles.
The banks are expected to decide on the merger within weeks. A key measure of default risk, credit default swaps, has risen for Deutsche Bank, which faced a $7 billion penalty in 2016 for mortgage-related scandals. The German government has explored options to strengthen the bank, including potential state-backed funding for strategic industries.
