Deutsche Bank, UBS briefly explored merger

Bloomberg

Deutsche Bank AG and UBS Group AG briefly explored the idea of a megamerger earlier this year that would have created continental Europe’s biggest financial institution, people with knowledge of the matter said.
Top Deutsche Bank and UBS officials held preliminary discussions in recent months about a potential combination, according to the people, who asked not to be identified because the information is private. The talks, which never proceeded beyond the initial stage, grew out of now-stalled negotiations to combine the firms’ asset management businesses, the people said.
The move underscores the wide range of options Deutsche Bank has been willing to explore as Chief Executive Officer Christian Sewing hunts for a new strategy to present to investors. There may be regulatory support for tie-ups amid increased US competition: European Central Bank President Mario Draghi said in April that Europe’s banking system is overcrowded and “the need for consolidation is very significant.”
In theory, a deal would marry Deutsche Bank’s fixed-income focus with UBS’s bigger equities business. It would also bring together UBS’s wealth management prowess with Deutsche Bank’s access to German entrepreneurs. Deutsche Bank shares have fallen 34 percent over the past year, giving it a market capitalisation of $14 billion, while UBS is valued at $44 billion.
Still, plenty of hurdles would need to be overcome if they were to seriously pursue a transaction, ranging from headquarters location to job cuts and leadership of the combined firm. The Swiss government may also be reluctant to allow a huge expansion in investment banking after shedding risks since a 2008 taxpayer rescue of UBS.
Merging Deutsche Bank and UBS would create a banking powerhouse with nearly $2.6 trillion of total assets, approaching the size of US giant JPMorgan Chase & Co. The combined entity would just surpass BNP Paribas SA, which had 2.28 trillion euros ($2.54 trillion) of assets at the end
of March, as the biggest financial institution in continental Europe, data compiled by Bloomberg show.
Axel Weber, UBS’s chairman, said earlier this year that he believes there should be consolidation among European banks — but that his firm wouldn’t participate. Still, he was formerly the president of the German Bundesbank as well as a Deutsche Bank CEO candidate and has close ties to many of the stakeholders involved.