German state and industries will be major shareholders for Deutsche Bank
Deutsche Bank announced that it has plans to merge with Commerzbank, in order to become Europe’s second-biggest bank after HSBC. The German state would become Deutsche Bank’s largest shareholder for about five years before merging the two banks. Alternatively, Deutsche Bank could raise money from German industrial companies to buy Commerzbank.
Emerging as a national leader in Europe
The merger between Deutsche Bank and Commerzbank is taking place for two reasons. The first reason is that the merge would avoid a foreign takeover of Commerzbank since it would be the second partner in any deal. Second, Deutsche Bank has been known as a bank of global importance. However, it has been affected by three years of constant loss and money laundering issues.
It is being claimed that Europe has just one bank in the top 20. Moreover, the merger of the two banks would mean that Deutsche bank, and Commerzbank, will not only become Europe’s second-biggest bank after HSBC. Besides that, the move would enable them to become the national champion in Europe.
Collaborating to build a strong economy
German Finance Minister Olaf Scholz said that there was a need for the country to have strong banks for its export-oriented economy. The reason between that is that there has been a recent slump in Deutsche Bank’s share price. Moreover, Deutsche’s prolonged failure to revive growth had fuelled talks that it may need to weigh a combination to address its problems. Thus, the investment in Commerzbank was made during the financial crisis, when the Deutsche Bank needed a bail-out from the state. Moreover, this financial crisis sparked debates in Germany about the costs to taxpayers.
The fact that the taxpayers money would be utilized to prop up a private bank would be risky as this would result in a backlash from the public. This made Deutsche Bank take the decision of converting itself into a holding company. Such a legal structure would make it easier to merge only parts of its operations or add those operations to a joint venture with another bank. Thus a merger between Deutsche Bank and Commerzbank to achieve that goal has won the backing of Berlin.