Deutsche Bank options shrink as revenue extends declines

Bloomberg

Christian Sewing’s options for turning around Deutsche Bank AG are shrinking. After an eighth straight quarter of declining revenue, reaction from investors and analysts suggested that the cost cutting at the heart of the chief executive’s strategy won’t be enough to keep markets at bay.
“I can hardly see a future for Deutsche Bank as long as there’s no radical change of strategy,” said Dieter Hein, an analyst at Alphavalue/Fairesearch near Frankfurt who recommends investors sell their shares. “It’s hard to see how they’re going to raise revenue and cost cuts are going too slowly.”
Even Sewing’s top lieutenants are worried that time isn’t on their side. Unless results in the first three months of 2019 show the turnaround is talking hold, they may be unable to avoid a government-brokered merger with Commerzbank AG, Bloomberg News reported. While ensuring continued German control of its biggest lenders, benefits to investors are less apparent.

MERGER TALK
“Merging with Commerzbank would be foolish,” Hein said. “Both banks are still trying to become profitable and I’m frankly afraid of what risks a combination would bring for German taxpayers.”
Taxpayers are already — at least partially — footing the bill to fix German lender Nord LB, which is being bailed out by public-sector savings banks and the state of Lower Saxony in a plan that may cost about $4.2 billion. Cerberus Capital Management and Centerbridge Partners had bid for a stake in the struggling lender.
Billionaire Stephen Feinberg’s Cerberus Capital Management, which also owns large stakes in both Deutsche Bank and Commerzbank, wouldn’t stand in the way of a deal, people familiar with the matter have said.
There’s different views from regulators and the government on the best way forward. While the German government is pushing for a domestic solution, local regulator BaFin suggests a preference for a European deal because the two domestic banks are currently too weak to benefit sufficiently from a combination, people familiar with the matter said. The European Central Bank favours a cross-border combination to drive integration in the region’s financial markets, Bloomberg reported Jan. 16, citing people familiar with the matter.
Deutsche Bank executives in September ran through various merger scenarios and concluded that a tie-up with Swiss competitor UBS Group AG was the most favourable option among potential European partners though they decided then the time wasn’t right. As the urgency to seek a radical solution has increased, Deutsche Bank is more willing to explore the avenue of cross-border mergers now, according to a person familiar with the matter.
Any cross-border merger would still be problematic because of Deutsche Bank’s low share price, likely putting it at a disadvantage in any tie up while opening the door to a scenario where it is headquartered outside Germany. Financial supervisors would likely require the bank to be headquartered in either one of Europe’s two largest economies, Germany or France, another person said.
Results last quarter reflected the impact of market gyrations and images of police raiding the bank’s headquarters in November. They highlighted the struggles for Sewing & Co. that left him vowing a return to “controlled” growth, a promise that eluded his predecessor. He said if revenue keeps disappointing, he’ll find ways to boost savings.