Deutsche Bank, Commerzbank said to be intensifying merger talks

Frankfurt

DEUTSCHE Bank AG and Commerzbank AG are intensifying informal merger talks as their turnaround efforts sputter, according to a person familiar with the matter.

Recent setbacks for the two banks, including lacklustre trading conditions, an economic slowdown and continued low interest rates, have added to the urgency to reach a potential deal.

The person asked not to be identified in disclosing internal deliberations.

Less than a year after taking over, Deutsche Bank chief executive officer Christian Sewing is struggling to regain market share and reverse a long decline in revenue. The lender in February reaffirmed its 2019 profitability target but also made clear that it would need to take more dramatic steps if markets don't play along and the business continues to decline.

The banks declined to comment on the talks, which were reported earlier by the German magazine Focus.

Both banks lost more than half of their market value last year.

The two banks previously discussed a merger in the summer of 2016 under then-Deutsche Bank CEO John Cryan but the talks fell apart and the lenders embarked on their respective restructurings.

Almost three years later, their turnaround plans are sputtering. Commerzbank has dropped most of its 2020 financial targets after cutting its revenue outlook.

For Deutsche Bank in particular, the urgency to address the situation is exacerbated by the risk of a rating downgrade. Two credit rating providers - Moody's Investors Service and Fitch Ratings - have a negative outlook on their current ratings. Fitch has warned that it may downgrade the bank if it fails to reach its profitability target.

Deutsche Bank is planning to implement tougher cost cuts as a step to ensure that it can reach this year's profitability target, two people said.

Critics of a Commerzbank merger say it would lock Deutsche Bank into several years of restructuring and come with high execution risks, as job cuts are difficult to implement given Germany's tough labour laws.

They also warn that Deutsche Bank's disappointing track record of technology integration would make it tricky to achieve savings. BLOOMBERG