Takeover Target

Commerzbank on Tenterhooks

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Will France’s BNP Paribas get a green light to take over an ailing Commerzbank? Source: Reuters

An increasingly sluggish pace of restructuring – especially possible delays in developing vital digital technologies – and continued weak earnings are spurring speculation that Germany’s second-largest bank is ripe for a takeover.

Morale at Commerzbank has reached a new low, insiders say, as every day seems to bring headlines of yet another potential bidder for the bank. UniCredit of Italy along with BNP Paribas and Crédit Agricole of France have been mentioned as acquirers, and talk of a takeover by Deutsche Bank, Germany’s largest, has revived. Amid negotiations for further massive layoffs, staff is losing faith that Chief Executive Martin Zielke can turn things around and hope that the bank can make it on its own.

Third-quarter earnings will once again be weak, even though some special items will spruce up the bottom line. The anemic earnings mean funds aren’t available for the investments in digital technologies that the bank needs to keep up with competitors. Everything but the most essential has been put “on ice,” sources inside the bank say. (Spokesmen for the bank say investments are proceeding according to plan.)

“Politically, moving closer together to France and a combination with BNP Paribas would totally make sense.”

Christoph Abeln, German lawyer

Even as far as Washington, the buzz among German finance experts attending the International Monetary Fund meeting last week was no longer about Deutsche Bank’s travails but who will end up with Commerzbank.

“It heightens uncertainty that almost daily you read the names of potential buyers in the newspaper,” says Christoph Abeln, a lawyer who says he represents several Commerzbank executives up to the top levels. “Politically, moving closer together to France and a combination with BNP Paribas would totally make sense.”

French government spokesman Christophe Castaner said earlier this month that it’s good that BNP Paribas “is turning to Germany and to a bank as important as Commerzbank” – apparently affirming that the acquisition has the blessing of French President Emmanuel Macron. That would, however, not necessarily please everyone at the German bank, because then French executives would take the top positions. In any case, BNP Paribas has yet to make its intentions clear.

But a French connection would be desirable compared to the perceived horrors of a takeover by UniCredit. “You can see with HypoVereinsbank what happens when UniCredit takes over a bank,” said one employee representative at Commerzbank. “Half of the branches are closed, and the business is ever more concentrated.”

A merger with Deutsche was briefly sounded out last year and quickly abandoned, but some staff think it might still make sense in two years once that bank’s own restructuring is further along. For many in Commerzbank, however, the “traumatic” experience of the 2009 merger with Dresdner Bank makes a foreign buyer look more desirable.

One key is what the government intends to do with the 15-percent share it still holds from the 2009 rescue of Commerzbank. Some speculate that Berlin sees the holding as a bit of a playground and would not to give it up at bargain-basement prices. Also, the government may prefer a “national” solution – that is, a merger with Deutsche Bank.

Meanwhile, operating earnings at Commerzbank continue to be weak, these insiders say, but a one-time gain of €176 million from liquidating a joint venture with BNP Paribas will soften the blow in the third-quarter results. The bank had a loss of €637 million in the second quarter due to reserves for layoffs. But the investments in digital technologies and the cost of recruiting new customers also depress earnings. Not everyone on the staff buys the notion that these new customers will become profitable after 18 months. “That is not really convincing,” says a worker representative.

Particularly perplexing is the postponement of several projects in the bank’s digital laboratory designed to bring Commerzbank up to date with the latest technologies. One can’t announce a “Commerzbank 4.0” and then shortchange IT investments, some employees are complaining. It seems to be a hopeless downward spiral that only a buyer with the requisite resources can reverse.

But nothing will happen until someone steps up and makes an actual bid. Going once, going twice – watch this space.

Andreas Kröner and Yasmin Osman cover banking for Handelsblatt in Frankfurt. Darrell Delamaide adapted this into English for Handelsblatt Global. To contact the authors: kroener@handelsblatt.com and osman@handelsblatt.com.

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