Deutsche Bank preparing ‘Plan B’ if takeover talks fail

Bloomberg

Deutsche Bank AG is working on an alternative strategy to present to investors should takeover talks with rival Commerzbank AG collapse, according to people familiar with the matter.
Some top shareholders want the bank to prepare options as obstacles to a combination pile up, according to people familiar with the matter. Chief Executive Officer Christian Sewing is considering two basic scenarios: a small update that would mainly consist of more and accelerated cost cuts including at the investment bank, and a bigger strategy shift that would create upfront costs, said one of the people.
Formal talks between the two lenders have dragged on for almost five weeks and there’s no indication that an agreement is near. Opposition has been mounting as labour unions seek to prevent tens of thousands of job cuts, and political support has waned. Even inside the banks, there’s an acute awareness of the many obstacles to a deal, leaving executives still undecided whether they should move forward, according to people briefed on the talks.
At least two of Deutsche Bank’s largest investors said they would want to see a new strategy from Sewing should the discussions fail. It wouldn’t be credible to simply revert to the old plan because it has proven insufficient to boost profitability and the share price, the investors said, aski-ng to remain anonymous. A spokeswoman for Deutsche Bank declined to comment.

KEY OBSTACLES
Deutsche Bank Supervisory Board Chairman Paul Achleitner has said the bank plans to give an update by the publication of their first-quarter results, slated for April 26. Commerzbank had been pushing for an earlier announcement to limit uncertainty for employees, people familiar with the matter have said.
Skepticism about the benefits of a tie-up of the two German lenders was always high, but the discussions had the backing of the Finance Ministry. Even with all the obstacles, a deal could still happen given what’s at stake for the banks and the country.
Among the key obstacles are the prospect of revenue attrition, the uphill battle to achieve cost savings, and the question of how to raise the money needed to pay for a transaction. People involved estimate that clients seeking to reduce their exposure to a combined bank could pull as much as 1.5 billion euros ($1.7 billion) of their business.
A takeover would probably also trigger a revaluation of some of Commerzbank’s assets, which it has on its books at about 2.4 billion euros more than their current market value, though the actual writedown would probably be lower. And then there are restructuring expenses, estimated at around 4 billion euros by people briefed on the talks.
All of these obstacles would reduce the benefit from cost savings that could be achieved by cutting overlapping bra-nches and jobs. As many as 40,000 positions are on the line, according to unions, a number that has labour representatives at both banks up in arms. Lawmakers across the spectrum, including from Finance Minister Olaf Scholz’s Social Democratic Party, have signaled opposition to the cuts.