Deutsche Bank AG has recently stepped up internal deliberations about the possibility of takeovers involving European lenders including Commerzbank AG and ABN Amro Bank NV, as CEO Christian Sewing explores ways to boost his lender’s valuation.
Scenarios that Sewing has discussed over the past months have revolved around a handful of European banks with its German rival and the Dutch lender among the targets deemed attractive, people familiar with the matter said. The informal discussions with potential advisers about possible combinations come as Germany’s biggest bank looks to bulk up and reap synergies.
Deutsche Bank hasn’t formally mandated any investment bank to help it with its deal hunt nor has it held talks with any of the European lenders on its list of potential targets, they said. The bank is constantly assessing potential deal scenarios, one of the people said.
There are significant hurdles to any potential tie-up and the chances of a mega-transaction ultimately being consummated are currently low, the people said.
Spokespeople for Deutsche Bank, Commerzbank and ABN Amro declined to comment.
For instance, any deal for its cross-town rival would require massive support from regulators, according to the people.
Under current standards, an acquiring bank has to revalue the assets and liabilities of the target at current market value. That could cause a significant writedown on loans even though they’re held to maturity. An acquisition of Commerzbank by any buyer would likely trigger a mark down well above €10 billion ($10.9 billion), the people estimated.
Still, Sewing and his lieutenants see a blockbuster deal as one way to boost its share appeal among investors. The current strategy has so far largely failed to boost the bank’s valuation, which has remained low compared to the European average throughout Sewing’s tenure.
Deutsche Bank currently has a market value of about €25 billion ($27 billion), compared to around €14 billion for Commerzbank and €12 billion for ABN Amro.
Supervisory Board Chairman Alexander Wynaendts said in November that Deutsche Bank wanted to be ready to do deals even though its strategy doesn’t depend on it. But the lender’s low stock value is itself a deal deterrent as it raises the cost of any acquisition for existing shareholders.
Both Deutsche Bank and Commerzbank have stabilised in recent years, as years of restructuring work paid off and rising interest rates boosted profitability. In 2019, the two banks held merger talks that ultimately fell apart due to the risks involved, pushback from shareholders and concerns from labor representatives.
Still, in its most recent set of results Deutsche Bank said it was targeting a cost-income ratio, a key yardstick for profitability, of below 62.5% by the end of 2025. That’s well below the 73% it reported for the first nine months of 2023.
A deal for ABN Amro would also mark a departure for Europe’s finance industry. While banking consolidation in Europe has accelerated in recent years within countries there have been no significant cross-border combinations within the Eurozone.
Banks have stayed away from more ambitious strategic moves due to accounting rules like the so-called fair value gap and the fragmented regulatory landscape.
In the euro area, for instance, banks can‘t move deposits from one country to another to fund loans, which means a bigger deposit base would not lead to asset growth. There’s no common deposit insurance plan in the European Union and countries have different rules for everything from money laundering to financial products. Some national regulators have pushed back on proposals to ease the rules.
Both Commerzbank and ABN Amro still count their respective governments as shareholders following bailouts in the financial crisis. While the Dutch government is in the middle of paring its stake, the German government hasn’t yet detailed its plans.