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Deutsche Bank, Commerzbank Call Off Merger Talks On Regulatory Risks, Capital Requirements

Elizabeth Balboa

Although it initially surged 4 percent on the news, Deutsche Bank AG (NYSE: DB) shares traded down 2 percent Thursday after the firm called off merger talks with Commerzbank.

What Happened

After six weeks of negotiations, the pair abandoned a potential deal after regulators and investors expressed concerns and unions had protested impending layoffs.

“[A] combination with Commerzbank would not have created sufficient benefits to offset the additional execution risks, restructuring costs and capital requirements associated with such a large-scale integration,” Deutsche Bank wrote in a statement.

Why It’s Important

The rivals had pursued consolidation in an effort to compete with major U.S. banks. Both have struggled to recover from the financial crisis and posted low profits recently. Deutsche Bank, which is Germany’s largest bank, saw a 0.4-percent return on investment in 2018, which fell well below that of foreign competitors.

Deutsche Bank investors had been hesitant to provide cash supporting the purchase, and the European Central Bank would have demanded a capital raise before approving the sale, according to Reuters.

Some critics said the buyer was already too big to fail, and the deal would have exacerbated Germany’s risk of a bailout.

Related Link: Deutsche Bank Feared Trump Would Default On Loans

What’s Next

Reuters cited doubts that either bank can continue independently for long. Commerzbank management expects new bids to emerge, including from the interested parties of UniCredit and ING Groep.

“It is clear that others will now come out of the woodwork with offers and ideas,” it told Reuters. The firm’s CEO told employees that staying the course was “not an option.”

Deutsche Bank will continue pursuing a deal for its asset management unit and may answer the calls of regulators to axe its U.S. investment bank: “Deutsche Bank will continue to review all alternatives."

The stock traded around $8.43 per share Thursday morning.

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