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Home » Daily Briefing » Daily briefing - 04 April 2019

Daily briefing - 04 April 2019

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It's merger time again as banks fret over the beginnings of round two of the GFC, which never got resolved or went away. Germany and the UAE currently face a similar challenge, and are thinking of similar outcomes. Let's talk Deutsche Bank for a start, which has been denying anything about merger talks since mid-2018. Support for the Deutsche Bank-Commerzbank merger is coming from a high level in the German state and government, following the logic that lacking a national champion, German businesses will be forced to rely on US and Chinese megabanks.

The irony is that efforts beginning in the 1990s to build Deutsche Bank into a world-beating investment bank succeeding in attracting the type of aggressive traders that made Deutsche a byword for excess and hubris. There's another big issue at work here. Former Deutsche Bank boss John Cryan stated that replacing workers with robots was the way to profitability for the bank. Workers have been on alert ever since. "Due to the crucial role unions play in Germany's consensus-driven corporate culture, the Commerzbank workers' protests are more than merely background noise to a transformative deal that would create the eurozone's second-biggest bank with €1.8tn in assets and €845bn of deposits," writes the FT. "Over the coming days, Verdi will stage one-day walkouts in all major German cities including Berlin, Munich, Frankfurt and Cologne. Formally, the temporary strikes are about the unresolved wage negotiations in the sector, but the protests will also be driven by the merger angst."

However, UniCredit is watching from the sideline, confident of being called up as a substitute. This makes some kind of sense: Italy remains one of Europe's manufacturing heartlands. "UniCredit's plan involves amassing a sizeable stake in Commerzbank, which has a stock market value of €9bn, and merging it with HypoVereinsbank, the German lender it already owns, one of the people said. The combined entity would be based in Germany while UniCredit would maintain its headquarters and listing in Milan, the person said. Commerzbank would retain a free float of shares listed on the Frankfurt stock exchange, they added. "The combination would make sense for Germany," said one person advising UniCredit. "It could be presented as a national champion." Clever.

Big efforts are underway in the UAE also to finally confront the changes roiling the region as oil prices remain low and the emirates remain in lockstep with Saudi Arabia and in conflict with Qatar. The solution so far in the UAE is merging banks to save them, while claiming that this is in the national interest. From Bloomberg: "The emirate plans to wait for a three-way combination of Abu Dhabi Commercial Bank PJSC, Union National Bank PJSC and Al Hilal Bank to close before starting fresh talks to condense the finance industry further, the people said, asking not to be identified as the talks are private. Deliberations about a potential combination are in early stages and is being currently being discussed at the shareholder level of both banks, the people said. The banks have not formally appointed advisers, and discussions may not lead to a deal, they said." Bloomberg notes a report by Arqaam Capital suggesting the merits of a deal between ADIB and FAB, which would create the region's largest lender, marginally bigger than Qatar National Bank. The banks deny the rumours. (See first paragraph.) Regarding meetings at the "shareholder level", it's worth noting also that around a third of the shares in each bank are held by state-controlled entities.

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