Talks ran for about two weeks, involving Deutsche’s chief executive, John Cryan, as well as his counterpart at Commerzbank, Martin Zielke, according to people familiar with the situation.
However, the preliminary discussions recently ended after both sides concluded that it was not the right moment to combine, as they both had significant work to do on their own businesses before they could take on such a large-scale transaction.
Deutsche is in the process of an overhaul that involves downsizing its retail-banking network, while Mr Zielke, who took over from Martin Blessing in May, is due to set out his plans for Commerzbank this autumn. Mr Blessing had previously looked into the possibility of how a combination with Deutsche might work.
Both banks declined to comment. However, Mr Cryan - who was asked at a banking conference about a report in Germany’s Manager Magazine that Deutsche had had internal discussions about a combination with Commerzbank - said earlier on Wednesday that Deutsche was not looking for partners in Germany, and was working to carry out the five-year plan he spelt out last autumn “on our own”.
Deutsche’s share price has lost half of its value over the past year, while Commerzbank’s has shed almost 40 per cent, as investors fret about the impact of rock-bottom interest rates, tightening regulation, and - in the case of Deutsche - the potential cost of a number of unresolved legal cases.
In an attempt to improve Deutsche’s profits and capital, Mr Cryan in October set out a plan that involved selling off Postbank, the post office that it bought in stages from 2008, cutting assets in its investment banking arm and exiting 10 countries. He stressed on Wednesday that regulators wanted banks to shrink, not grow.
However, in his speech at the conference in Frankfurt, arranged by the German newspaper Handelsblatt, Mr Cryan said that the German banking sector did need consolidation.
“There are simply too many banks in Germany. Unlike in Spain, France or northern Europe, there has never been a major move towards mergers. The result: fewer economies of scale, more competition, higher price pressures,” he said.
Mr Cryan added that mergers were needed at a national level and across national borders. Mr Zielke agreed that there were too many banks in Germany. However, Georg Fahrenschon, head of the German Savings Banks Association, said that calls for a “fundamental wave of consolidation among banks” were “not appropriate”.
share of the German banking market held by its 5 biggest banks in 2014, according to the ECB
Germany has the least consolidated banking sector in the eurozone. According to the European Central Bank, the five biggest banks in Germany had a market share of just 32 per cent in 2014.
The result is brutal competition for taking in deposits and giving out loans, which has put huge pressure on the margins of German lenders. In the first three months of the year, the sector’s return on equity was just 2.6 per cent, according to the European Banking Authority.
Shares in Deutsche were up 2.9 per cent on Wednesday afternoon, while Commerzbank’s stock was up 3.6 per cent.
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