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Can Two Weaks Make A Strong?

16 January 2019 by lberuti

A few months ago, German officials said that they would view favourably a tie-up between DB (Deutsche Bank AG) and CMZB ( Commerzbank AG), as the idea of a banking national champion appealed to them. But today, the European Central Bank said that it favours cross-border combinations to drive integration in the region’s financial markets. An analysis by BaFin, the German regulator, suggested a preference for European deals because the two domestic banks are currently too weak to benefit sufficiently from a merger. That analysis seems in line with what DB’s management think. Indeed, towards the end of last year, they apparently came to the conclusion that a merger with UBSGRP ( UBS Group AG ) would be the most favourable option, but that the timing was not right given the German bank’s share price. Investors expressed relief at the thought the two ailing institutions could not merge after all and find more robust partners instead. DB’s 5-year risk premium closed 12bps tighter at 189bps and CMZB’s closed 8bps tighter at 112bps.