Market Analysis

German banking giants, Deutsche and Commerzbank advance ahead of merger talks this week

German banking giants Deutsche and Commerzbank shares advanced sharply on Monday after officials confirmed that the two banks are entering into merger talks this week. Deutsche bank gained close to five percent on the day, while Commerzbank enjoyed the strongest gains and advanced by over seven percent.

Deutsche Bank is the largest banking institution in Germany, while Commerzbank Bank is the countries second largest bank, which would mean that a potential merger would see one large bank capturing one-fifth of the German retail banking market. Deutsche Bank currently employs over 90,000 people, while Commerzbank employs just under 50,000 people.

Some fears have emerged that a potential merger would mean widespread job losses, as attempts would be made to make a more efficient and streamlined banking entity, which would set out to avoid previous issues that occurred under Deutsche and Commerzbank’s watch. Some recent reports have noted that up to 30,000 job losses could occur, which may lead to potential difficulties during merger talks this week.

Risks could also emerge from the losses sitting on both bank’s balance sheets, of which the scale has previously been unknown or downplayed by investors. Deutsche Bank’s share price had been hit over these potential losses for much of 2018, while Commerzbank is currently exposed to heavy losses from the Italian bond market.

The German government currently holds a fifteen percent stake in Commerzbank and reports suggest that Berlin officials are keen for the merger to take place, in order to steady the German banking sector, which has repeatedly struggled. The German government also favor a local merger of the nations two largest banking institutions, rather than a foreign takeover.

A potential merger would mean that one single German bank holds close to 1.8 trillion euros in assets, which would easily make it the largest banking institution in German history. Some analysts have suggested that a merger between both banking institutions will still not solve the underlining issues that exist in the German banking sector.


Deutsche Bank Daily Mountain Chart | Source: ActivTrader

Deutsche Bank Daily Mountain Chart | Source: ActivTrader 


Deutsche Bank’s share price has been recovering from multi-year lows on the merger news, with Deutsche Bank now trading above its key 50-day moving average. Bulls have a major challenge with the 200-day moving average on the horizon if they can continue to rally the share price. The key date to watch this week is Thursday, where Deutsche and Commerzbank are set for initial merger talks.


Written by Nathan Batchelor, External Analyst


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