Which major global power doesn’t also have a domestic banking champion tethered to it? The US, China, Japan and France do. But champion isn’t the word that comes to mind when describing either Deutsche Bank or Commerzbank, the Mittelstand lender that the German government had to bail out in 2009 and still owns a 15 per cent stake in.
The negative sentiment and a constant stream of problems have sullied both DB and Commerzbank. That’s the reason why for months there’s been a bombardment of stories suggesting that Deutsche and Commerzbank may merge in a deal orchestrated by the German government.
The topic is the focus of this excellent deep dive by the FT’s Stephen Morris, David Crow and Olaf Storbeck.
To help understand how likely a deal is, here’s an introduction to the men, yes all men, behind the deal.
Paul Achleitner, Deutsche Bank chairman
Achleitner is the key internal champion of a deal and it’s no exaggeration to say his legacy rides on the outcome. Orchestrating a German bank megamerger is the chairman’s best chance at redemption after a torrid seven years overseeing DB, during which the lender has gone from global investment-banking powerhouse to systemically-unstable powder keg.
The wily — some would say Machiavellian — yet affable 62-year-old Austrian is one of the best-connected power-brokers in European business and is treasurer of the secretive Bilderberg Group of political and business elites, alongside the likes of Santander chairman Ana Botín and the venture capitalist Peter Thiel.
He’s said to think a deal will reduce Deutsche’s unsustainably high funding costs and will fulfil a demand for a non-US investment-banking champion.
Christian Sewing, Deutsche Bank chief executive
Less than a year into the top job, Sewing’s tenure has been dominated by speculation about a tie-up. His frustration with this spilled over on a call with his top managers last year when he told them it was “bullshit” to use distraction caused by the putative merger as an excuse for their poor performance.
The 48 year old has spent his entire professional life at Deutsche and has repeatedly said he wants to get his own house in order before considering buying Commerzbank, or anyone else. However, he’s careful to never contradict his powerful chairman, in public or private. If a deal does happen, good luck convincing our Lex column not to go with a “Saving Sewing” headline.
Olaf Scholz, German finance minister
For years German politicians seemed blasé to the fate of their big banks, but this has changed under Scholz. The business-friendly Social Democrat declared the issue a matter of “national sovereignty” and has taken a much closer interest than his predecessors, with his people meeting with Deutsche’s top brass two dozen times in the past 10 months. Scholz has thrown his personal weight behind a deal and is the main reason why the cognoscenti in Frankfurt now see it as almost inevitable, rather than a pipe dream.
Down to earth, softly-spoken and cerebral, he’s known as “Scholz-o-mat” in his hometown of Hamburg for his robotic, deadpan delivery.
Jörg Kukies, deputy German finance minister
Kukies, the government’s emissary to the financial world, is another interesting character in this tale. Like Achleitner, he is Harvard educated and an alumnus of Goldman Sachs with a personality to match: confident, brash, ebullient. His appointment was controversial in Germany — the left accused the finance ministry of cosying up to bankers — but if a deal does go ahead soon, Kukies will be the one putting it together for the government.
Martin Zielke, Commerzbank chief executive
While definitely the junior partner in proceedings, Zielke too has a lot at stake. A deal could bail him out from a thus-far unspectacular tenure at Commerzbank — the shares plunged 56 per cent last year — and he could get a senior role in the uber-bank that results.
Even though foreign competitors are also courting Commerzbank for its strong middle-market Mittelstand franchise — and a non-German buyer would also mean less business overlap and fewer job cuts — Zielke is said to prefer a domestic merger, believing he would retain more control in that scenario.
Cerberus Capital Management, shareholder
The US private equity fund is named after the three-headed hound that guards the gates of the Greek underworld. It’s counting on this deal to turn around its fortunes. It has built up sizeable stakes in both parties and made a big €4bn bet on German banks in general. So far it has lost about €600m on the venture, so it could use a bit of a bump. Led by the former JPMorgan Chase executive Matt Zames, Cerberus is the only major investor firmly in favour of a deal with the others sceptical or outright opposed with Germany's terrible record of at the front of their minds.
Europe’s top regulator sits down with the FT
The EU is mulling a new industrial policy to cope with Chinese global ambitions and American protectionism. The French and German governments see it as an opportunity to overhaul the bloc’s competition rules.
Margrethe Vestager (pictured below), the EU’s competition enforcer, has other ideas. In an interview with the Financial Times, the Dane warned that any changes need to be well thought through.
“It is a very strategic choice to have fair competition — and you can see that it bites,” says Vestager. “If we want to change it we should be very well aware of the consequences.”
Other jurisdictions have made different choices, according to the commissioner. China has opted to support state-owned monopolies with global ambitions, while the US has allowed “more concentrated markets” and all that entails in terms of corporate power.
She warned that had she allowed the Siemens-Alstom railway deal without further divestments it would’ve cut competition and increased prices for very high-speed trains, thereby pushing customers to look for a cheaper supplier — “de facto inviting” foreign competitors such as Beijing-backed rival CRRC into the market. The very thing the deal was meant to counter.
Antitrust rules often come under the spotlight at the end of a commission’s mandate, typically driven by France. But something may actually happen this time as the Germans also want change (fired up by the Siemens-Alstom veto and the Chinese purchase of Kuka in 2016). Also the UK, traditional defenders of strict competition rules, are heading for the exit.
Vestager sees the need for “a more nuanced and more pragmatic approach”, and across the bloc there’s widespread agreement that something must be done to help Europe compete and innovate. Agreeing what that something should be is much more difficult.
The commissioner thinks reform should focus on new regulatory tools to police access to data as more industries digitalise their products and services.
“The creation of data and the pooling of data have been so much faster than expected — now the internet of things is a thing,” she says, adding that with “data monopolists” controlling access and setting prices “it’s very difficult actually to be competitive” meaning that antitrust officials can’t see things the same way they did five years ago.
She also sees merits in a tougher trade policy and the EU doing more to ensure a global level-playing field with regard to subsides and market access.
The French economy minister Bruno Le Maire and his German counterpart Peter Altmaier offered up their 14-point reform plan last month. They want three changes to EU merger policy: consider any state-control or subsidies of the parties; “take greater account” of global rivals and potential future competitors over a longer timeframe; and allow politicians to override an EU merger decision.
Officials warn any changes made could hamper European companies abroad if other jurisdictions follow the EU’s lead.
There are plenty of sceptics. Portugal has concerns and the Dutch weren’t impressed. Although their recent purchase of 14 per cent of Air France-KLM shares seems in line with point 10 of the Franco-German reform plan: “Temporary involvement of public actors in specific sectors . . . to ensure their long-term successful development.”
Le Maire nevertheless saw the Dutch move as “incomprehensible and unexpected”. There’s clearly plenty to discuss before Europe's new industrial policy takes off.
Be sure to read Vestager’s full interview with the FT’s Rochelle Toplensky. And if you want more on the discussion, the FT recently sat down with Portugal’s prime minister António Costa who warns that national security procedures must not be misused as a pretext for discrimination.
Game of Ghosns: ‘brake on the French state’ edition
Carlos Ghosn himself has said from prison that his downfall was a result of “plot and treason” by Nissan executives bent on scuppering a merger with Renault.
Whether that’s true — or if Ghosn is guilty or not — remains unclear, but what’s now certain is that his plans to bring Renault and Nissan closer together shocked Japan into action thanks to new reporting from the FT’s Tokyo and Paris bureaux.
Ever since Ghosn said in February last year that he wanted to make the carmaker’s alliance “irreversible”, some senior executives at Nissan began to prepare to resist what they thought was a merger being pushed by Renault’s largest shareholder — the French state.
With fears of a powerful and interventionist Paris and potential Japanese job losses in mind, some of Ghosn’s closest lieutenants at Nissan told him that Japan’s prime minister Shinzo Abe would back the company in resisting the merger.
They also asked Japan’s Ministry for Economy, Trade and Industry for support to “put a brake” on the French government, spurring Meti to send a letter demanding Paris “inform the Japanese government” if it were to make any specific proposal to Nissan.
However, that punchier language was eventually watered down in a final version of the memo, suggesting that perhaps the Nissan executives were playing up the government’s support in front of their boss.
Either way, even as they were briefing Ghosn on the Japanese government’s stance, some of his lieutenants were simultaneously mounting the secret investigation that would lead to his arrest.
Those facts, amid the briefings and counter-briefings that have cascaded since his arrest in November, have given comfort to those who see a conspiracy theory behind much of what has happened, both to Ghosn and to the Renault-Nissan alliance.
KKR has hired Kate Richdale, the chairman of investment banking at Goldman Sachs in Asia, to help the company expand beyond its traditional core businesses in the region. Richdale will assist the private equity group with government relations, fundraising and dealmaking. More here.
Ray Kelvin, the founder and chief executive of Ted Baker, has resigned months after being accused of inappropriate behaviour. Acting chief executive Lindsay Page is to continue in his role at the fashion brand, supported by executive chairman David Bernstein.
Aviva has appointed Maurice Tulloch as chief executive, ending a prolonged search triggered by the ousting of Mark Wilson. Tulloch has been at the insurance group for almost three decades.
Fabio Schvartsman has resigned as chief executive of Vale under pressure from prosecutors in Brazil investigating the mining company’s deadly dam burst in January. Schvartsman, who has offered a “temporary” resignation, will be replaced by Eduardo de Salles Bartolomeo as interim chief executive. More here.
John Hourican is leaving his role as the head of Bank of Cyprus to join NewDay. Sky News reports the former Royal Bank of Scotland executive, who resigned amid the Libor rate-rigging scandal, is close to being named chief executive of the consumer finance provider.
Donald McGahn, the former White House counsel, is returning to his former law firm, Jones Day, the American Lawyer reports. McGahn was central to installing conservative lawyers in government but famously clashed with Donald Trump over the special counsel’s investigation into alleged collusion with Russia.
Investment bank PJT Partners has hired Christoph Seidel, JPMorgan Chase’s head of M&A and corporate finance in Germany and Austria, Reuters reports.
Baker McKenzie has hired two new partners, Philip Annett and Caitlin McErlane, to join the law firm’s London financial services team. Annett was a counsel at Allen & Overy while McErlane was a senior associate at Sidley Austin.
Rodolfo Araujo has left his role as a vice-president at Institutional Shareholder Services to join FTI Consulting as a senior managing director and head of activism and corporate governance, Reuters reports.
The UK telecoms company CityFibre has appointed a former Goldman Sachs partner to its board. Simon Holden, who spent 18 years at the investment bank, takes on the newly created executive role in March. More here.
Caesars Entertainment and Carl Icahn have reached a deal to replace three existing board members with the activist investor’s nominees. Keith Cozza, Courtney Mather and James Nelson will replace John Boushy, Matthew Ferko and Christopher Williams.
Brunswick Group has named Janos Goenczoel as European managing partner and Fiona Claire Littig as head of the advisory firm’s Munich office.
Law firm Pinsent Masons has hired Lucy Thomas as a partner. Thomas previously held the same title at Ashurst.
Investec has hired Tom Glover as head of the bank’s fund finance business in New York. Glover was a managing director at BMO Capital Markets.
Two birds with one probe What started as a hot tip about suitcases at a massage parlour in Florida turned into a sprawling investigation on a network of brothels masked as spas where Chinese immigrant women worked in poor conditions as sex workers. The clientele allegedly includes the New England Patriots owner Robert Kraft and John Havens, the chairman of hedge fund Napier Park Capital, who said he was retiring from his role. Both men have been charged with soliciting a prostitute. (WSJ, FT)
Murdoch’s maleficence Jane Mayer has the goods on Fox News. Read her explosive New Yorker article on how Fox News had the Stormy Daniels pay-off story before the election but killed it because Rupert Murdoch wanted Donald Trump to win. It’s also peppered with details of the president ordering his top economic adviser, Gary Cohn, to pressure the justice department into filing a lawsuit to block the AT&T-Time Warner merger. (New Yorker)
Bad blood Staying with AT&T and Time Warner, there was a special guest missing at the screening of a new HBO documentary on Thursday about the Theranos scandal. HBO chief Richard Plepler’s seat was noticeably empty after he announced his shock resignation to staff earlier that night. Reports emerged soon after of a culture clash at the company as AT&T begins a structural overhaul of WarnerMedia. (FT, NYT, WSJ)
Going for gold Barrick Gold boss and animal hunter Mark Bristow wants to conquer the global gold mining business. The outspoken South African has previously accused investment bankers of “mixing ice cream and cow shit” in wasteful mergers but now he has to convince investors his hostile bid for Newmont Mining is full of flavour. (FT)
What’s in the maths that which we call a valuation? DD’s Sujeet Indap looks at how judges in Delaware are resolving disputes over M&A valuations in so-called appraisal rights claims. It’s the ultimate battle between the discounted cash flow method and efficient market theory. Who will win? (FT)
Due Diligence is written by Arash Massoudi and Javier Espinoza in London, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Jennifer Bissell-Linsk, Lindsay Fortado and Mark Vandevelde in New York, and Don Weinland in Hong Kong.
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