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No support from Merkel's party for Germany taking stake in Deutsche Bank

Substantial political resistance to deploying public funds despite govt support for a Deutsche-Commerzbank merger


GERMAN Chancellor Angela Merkel's ruling party wouldn't back the government taking a stake in Deutsche Bank AG to strengthen the nation's financial industry, senior members said.

"The argument for a 'big bank' can be discussed as a matter of economic policy, but it doesn't justify the use of taxpayers' money," Michael Meister, a member of the Christian Democratic Union's (CDU's) national leadership, said in an interview on Saturday.

He was responding to renewed speculation that the government is prodding Deutsche Bank and Commerzbank AG towards merging.

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Scenarios that have been discussed in the Finance Ministry include one in which the German state would become Deutsche Bank's biggest shareholder for about five years before merging the two banks, Focus magazine reported, without saying how it got the information.

While a merger to build a strong bank for Germany's export-oriented economy is said to have won the government's support, how and when to reach that goal remains elusive.

Germany's government owns about 15 per cent of Commerzbank, making it the bank's largest shareholder.

Three other senior CDU officials who asked not to be identified all said a government stake in Deutsche Bank would be a non-starter. While Germany's finance ministry is controlled by the Social Democrats, Dr Merkel's coalition partner, the sentiment within the CDU signals substantial political resistance to deploying public funds.

The comments by Mr Meister, a former deputy finance minister, make it clear that Dr Merkel's party views the Commerzbank stake as an emergency measure owed to the financial crisis a decade ago that can't easily be replicated and would be hard to explain to voters. Representatives for the ministry, Deutsche Bank and Commerzbank declined to comment.

As an alternative scenario, Deutsche Bank could raise money from German industrial companies to buy Commerzbank, Focus said.

Another option discussed in the finance ministry has been creating a holding company that would own stakes in both banks, according to the report.

Merger speculation was fuelled when private equity firm Cerberus Capital LLP purchased stakes in both Deutsche and Commerzbank last year. More recently, Finance Minister Olaf Scholz has repeatedly said that Germany needs strong banks.

Deutsche Bank's slumping share price and its protracted failure to revive growth has sparked talk that it may need to weigh a combination. A potential investment by German industrial businesses was explored in 2016 but wasn't pursued.

Deutsche Bank's top management is wary of any deal, not least because its low share price means that it would be merging from a position of weakness. Chief executive officer Christian Sewing has ruled out actively pursuing a deal before he can show he can hit his financial targets for next year.

Germany's largest lender has also been discussing converting itself into a holding company. Such a legal structure would make it easier to merge only parts of its operations - such as the retail bank - or add those operations to a joint venture with another bank. Chief financial officer James von Moltke has dismissed those discussions as non-strategic. BLOOMBERG