Deutsche Bank’s trading arm key for ECB in takeover talks

Bloomberg

Deutsche Bank AG’s troubled trading arm will be a focus of European banking regulators when they decide whether to approve a potential takeover of rival Commerzbank AG, according to people familiar with the matter.
Supervisors at the European Central Bank and national authorities want a clear idea of how much the combined entity will depend on the securities unit for revenue, said the people, asking not to be identified as the talks are private. The rationale of the deal cannot simply be to use additional retail deposits to finance the investment bank, said one of the people.
Deutsche Bank Chief Executive Officer Christian Sewing and Commerzbank CEO Martin Zielke have been discussing a merger for three weeks. Investment banking is one focus of the talks as Commerzbank is assessing Sewing’s willingness to restructure that unit, people familiar have said. For Deutsche Bank, a deal could help reduce stubbornly high funding costs by expanding the deposit base.
A takeover would mark the biggest test to date for the ECB’s supervisory arm after it started overseeing lenders less than five years ago. That means the ECB will be as stringent as possible to avoid being blamed should a merged entity run into bigger problems down the road, according to the people familiar with the matter.
Approvals are likely to hinge on plans to improve profitability, the people said. The banking watchdogs will be testing the credibility of the two lenders’ business plans as well as checking them against expected cost savings and revenue as well as capital buffers, they said.