According to Navagates broker, two large German banks, Deutsche Bank and Commerzbank, are planning a full merger, and these plans are already provoking a widespread reaction. For example, Deutsche Bank has major Qatar shareholder companies that are de facto controlled by the royal family, and their representatives fear that their stake would be too diluted. Also, unions express protest opinions, in which they believe that the merger of banks will certainly lead to large reductions of staff.
According to the Navagates review, Deutsche Bank is one of the most influential European financial institutions: in 2017, among German banks, it ranked first in terms of number of employees and assets (about 1.35 trillion euros), and fourth among European banks in general. This bank has a very long history, dating back to 1870, when it was founded with the approval of the Prussian king. Deutsche Bank is a universal bank, it consists of three main departments; one deals with corporate banking and investment, the other with commercial and private banking, and the third focuses on asset management.
Their theoretical “partner”, Commerzbank, is much smaller, has assets of 460 billion euros, and is fourth among German banks according to Navagates forex. The only thing in which they can be compared is a long history: Commerzbank was also founded in 1870. The state owns approximately 15% of the bank. Commerzbank has two main departments, one dealing with individuals and small businesses, and the other dealing with corporate clients, which makes the organization the same universal bank as Deutsche Bank, only without an investment block.
Over the past decade, both banks have accumulated a bunch of problems, which are the main reason for their unification, according to Navagates scam analysts. If it does happen, then Germany can finally get a really strong bank with a large national share, which will operate much more smoothly in conditions of economic tension. Some experts believe that the main driving force in the matter is the desire of the German government to strengthen the financial sector and create a financial organization that could protect the state’s economy from foreign capital flowing out of the country. Whether this will work out is very difficult to say this far because, according to the Navagates broker review, some of the problems of both banks are quite typical for the banking sector in Germany and Europe as a whole, and these problems cannot be resolved by merging two banks into a big one.
Many also express doubts about the merger, stressing that the process itself will not have enough financial resources. Many analysts believe that the merger may not occur primarily because there is nowhere to take money to recapitalize the bank; however, even if the merger does happen, you should not expect an immediate stable level of trust for the bank (unless, of course, the financial situation in the European and American markets does not change). It’s hard for banks to make money, and Deutsche Bank also has a train of dubious stories about very risky loans and money laundering.
Unicredit, an Italian bank with more than 800 billion euros of assets has also actively expressed interest in purchasing Commerzbank. navagates.com reviews claim that they do not plan to interfere with the merger in any way, but are always ready to buy back a large share of Commerzbank in case the deal with Deutsche Bank breaks. By the way, Unicredit looks profitable against the background of DB, if only because their market capitalization is about 27 billion euros, while DB has a capitalization of 15 and a half billion (past few years were not been particularly successful for the Germans).
Last year, Deutsche Bank brought about 340 million euros in net profit. Not a lot, actually, but much more important is the fact that, as analysts at Navagates broker write, that the bank no longer works at a loss, as it was the previous year, when they suffered 735 million euros in loss.
2008 and the crisis back then became a much more serious test for Deutsche Bank than many had expected, largely due to the peculiarities of banking in Europe. Experts believe that the main reason here is the common problems that the European economy was experiencing back then, when even lowering interest rates to record levels did not allow domestic demand to become, as expected, an instrument of economic development. Low rates and low margins between the value of deposits and loans and low-quality assets do not allow the banking sector to grow fully, according to the Navagates review.
According to some analysts, credit institutions in Europe have lost about 40% of their market value due to negative interest rates, and the German banking system is still at risk in this regard. Deutsche Bank, for example, grants mortgages at a rate of 1.08%, consumer loans at 3.5-7.4%, and interest rates on term deposits from approximately 0.05% to 0.25% per annum. As for Commerzbank, Navagates forex writes, their numbers are slightly different - the deposit rate is from 0.5% to 1%, and for loans from 1.75% to 3.75%. The profitability ratio for Commerzbank last year reached 0.19%, while for Deutsche Bank it amounted to 0.01%. These are very weak numbers for the German banking market, in fact, given the level of competition there. There are more than one and a half thousand commercial banks in the country alone, and all of them have to work at low rates, which do not make competition easier.
Money for Trump
The problem, of course, are not only that Deutsche Bank cannot find sources of income. The main German bank has repeatedly shown that they have serious problems in building the right business strategy, as well as in risk management, according to Navagates scam analysts. Germany's deposit-oriented customer base also adds to Deutsche Bank’s complexities.
In addition, integration with Postbank, which DB acquired during the crisis in 2008, still did not occur. Deutsche Bank is trying to act as an investment bank in the international arena, but their investment department in the States is losing again and again: more stable American banks surpass them in all respects. So, in the summer of 2018, a subsidiary of Deutsche Bank became, in fact, the only major bank in the United States that could not pass the Fed's stability test. In addition, they still suffer from scandals with papers on mortgages, money laundering and other things. Over the past decade, according to the Navagates broker review, the price per share of Deutsche Bank fell from 77 to 7.5 euros: the bank urgently needs funds for recapitalization and brand renewal.
There are also analysts who have called Deutsche Bank practically the main threat to the stability of the financial world since 2016, and the failure of the stability test that happened a bit later in the United States did not help the situation.
According to some media reports, including navagates.com reviews, Deutsche Bank allocated Donald Trump (who at that time was not yet the president of the United States), or rather Trump Organization, more than $ 2 billion in credit. This step turned out to be controversial, to put it mildly, because US banks were not going to give him loans after Trump's companies declared bankruptcy several times in a row, but DB agreed to it, apparently trying to create a reputation for themselves in the American market. In 2005, for example, more than $ 500 million of a loan was issued to build the Chicago skyscraper Trump International Hotel and Tower of 92 floors; the construction was almost completed by 2008, but, as Navagates broker writes, Trump was not able to sell apartments there because of the global crisis, and he simply did not repay the loan, citing force majeure circumstances. Only by 2012, did Trump finally decide to pay most of his debt.
In fact, the situation is so critical, according to the Navagates review, that merging with another bank seems to be the only way for management to save the situation.
Does the drain count?
Negotiations between Commerzbank and Deutsche Bank on the merger began back in 2016, but were suspended in order to give participants time to solve their problems. However, they didn’t work out particularly well, and the shares of both banks lost in price, according to Navagates forex, almost two-fold over the past year. The initiators of the merger (many believe that the German government is the main one) suggest that it should eliminate some of these problems and give stability to the new bank.
Navagates scam analysts have repeatedly said that Germany desperately needs “strong banks” and that, in theory, a merger can actually provide a good way out for both organizations. Experts also note that there was no bank previously in Germany that could be compared in size to its “counterparts” from the New World, and this merger could allow the creation of the third largest European credit institution, whose assets will amount to about two trillion euros, which will be beneficial both for the banks themselves and for the German government, which will finally receive a really strong national bank.
At the same time, they often emphasize that the merger is not the result of any major problems of the two banks, mainly the desire to reduce costs and strengthen their position in the competitive market. Because of this, according to the Navagates broker review, many Deutsche Bank shareholders are unhappy with the upcoming consolidation.
Experts believe that their main fear is the share erosion in case the bank initiates an SPO to raise money. Investors from Qatar joined bank capital about five years ago, and studies show that since then its shares have not stopped falling. This allows us to conclude that the dilution of the share is hardly included in the bank's management plans.
Unions are also not very happy with the possible merger. The two banks jointly have a staff of more than one hundred thirty thousand people, and fears are expressed that the creation of a new bank will lead to the dismissal of 30 to 50 thousand. Analysts note that, in essence, such a union is tantamount to the liquidation of one of the banks.
On the other hand, those shareholders who have shares in both banks, speak in favor of the merger, in particular, one of the largest funds in the United States, Cerberus Capital Management, and the German government, which owns about 15% of Commerzbank. Interestingly, Unicredit Italians' interest in buying Commerzbank could also accelerate the merger; navagates.com reviews believe that the Germans are unlikely to want one of their most powerful financial institutions to go under control of an Italian organization.