Germany eyes EU banking champion in fix for Deutsche woes

Bloomberg

With Deutsche Bank AG and Commerzbank AG struggling, a chorus of German power players is suddenly stepping up calls for national champions big enough and strong enough to support the country’s export-driven economy.
In the span of a few days, leading politicians, banking regulators and even Deutsche Bank’s chief executive officer have uniformly highlighted
Europe’s, and especially
Germany’s, fragmented financial landscape. Between the lines, the message is: mergers are needed, and European cross-border deals would be an interesting option.
Finance Minister Olaf Scholz bemoaned that the financial crisis caused German banks to fall behind global rivals, creating risks for the continent’s largest economy. He suggested a European solution, rather than a national one.
“The question of how to achieve the scale and size to compete globally is something that must be discussed,” he said at a banking conference in Frankfurt, when asked whether mergers might be necessary. “When it’s about reshaping the European banking industry as a whole, of course we need a situation that makes headquarters in Germany or Frankfurt clearly possible.”
A decade after the financial crisis, record-low interest rates, strategic missteps and regulatory demands have caused a remarkable decline in Germany’s two leading banks. Commerzbank is poised to drop out of the benchmark Dax index, and Wirecard AG — the online payment provider due to replace it — is worth more than Deutsche Bank.
Amid tough market conditions and tighter regulations, “the pressure to consolidate will rise significantly,” Deutsche Bank CEO Christian Sewing said. “There are 5,500 financial institutions in the euro area. But how many of them can really manage risks in a world economy where’s it’s increasingly hard to get an overview?”
While there has long been speculation that Germany’s two biggest banks could ultimately seek a tie-up, the latest comments suggest European combinations are gaining favour in Chancellor Angela Merkel’s government, even if it’s just rhetoric for now.
The country’s exporters “need two strong big German banks,” Volker Kauder, the head of Merkel’s bloc in parliament, said in an earlier interview with Handelsblatt newspaper. “Otherwise, our banking market becomes too fragmented. We need to think about how we can get big powerful banks in Germany again.”
While the government can’t engineer a deal on its own, it’s more than just an interested observer, owning 15 percent of Commerzbank. The spate of comments suggests growing concern that action is needed before another downturn hits. The fear is that Deutsche Bank’s lost influence could hamper global giants like Volkswagen AG, Siemens AG and Bayer AG as well as Germany’s Mittelstand, the small and mid-size companies that make up the backbone of the economy.