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If you’re looking for one of the worst ideas in contemporary banking, look no further than Germany. The mooted merger between Deutsche Bank AG and Commerzbank AG would make a mockery of any notion that EU governments are serious about ending the “too big to fail†problem. It would also turn back the clock on a guiding principle of European regulation over the past decade: The promotion of a “banking union,†where risks are shared widely across the continent on the basis of jointly decided rules.
Berlin clearly has a problem when it comes to Deutsche, its most iconic lender. The bank has come under the scrutiny of regulators across the world because of its large portfolio of illiquid assets, as well as its implication in a string of money-laundering scandals and its dubious and relatively weak capital position. A succession of chief executives has failed to shrink costs sufficiently and revamp revenues. The share price has plummeted, leaving German politicians scrambling for a fix.
One proposed solution is to tie up Deutsche with Commerzbank. A merger might also spare German government the embarrassment of having to consider an injection of public money. This would cause a domestic political backlash, and accusations of hypocrisy from abroad.
It’s not as if any of those supposed advantages of a merger stand up to scrutiny. The two banks specialise in different areas (Deutsche in investment banking, Commerzbank in trade financing), weakening the case for finding efficiency gains and savings. Meanwhile, combining the two banks would create an entity with more than $2 trillion in assets, mostly concentrated in a single country rather than spread across national borders.
Deutsche is already the name that pops up every time someone questions the resolution board’s ability to cope with a complex bank that might get into trouble. Adding Commerzbank would merely make this worse.
A domestic combination would confirm once more that Europe’s banking union is still very much unfinished. The euro zone has a single supervisory mechanism and a single rulebook, but this has failed to spur any significant cross-border merger since the creation of the banking union.
Governments have failed to unify other crucial areas of banking, including deposit insurance and bankruptcy laws, which remain national. The ECB hasn’t always been consistent enough in its demands on capital buffers, making banks more cautious about getting together. And this is before you get into the inherent difficulties of executing any cross-border merger, spanning from language to culture.
The danger is that we’re entering a phase where governments are no longer interested in a truly European banking system, and prefer to retrench to their domestic comfort zones. In Italy, the ruling populists have mounted an unprecedented challenge to the spirit of the single European rulebook, demanding the right to use state money more easily on banking losses. Now Germany, which had been a strong backer of the new regime, is toying with its own national solution.
—Bloomberg
Perhaps banking can’t be immune from the new sovereign-first zeitgeist. But it’s certainly not what Europe had in mind at the start of the decade.
—Bloomberg
Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. He previously worked at Reuters and Forbes