John Cryan, chief executive officer of Deutsche Bank AG DB brushed away rumors of a potential merger between Deutsche Bank and Commerzbank AG, the second largest bank in Germany.
Earlier on Wednesday, without specifying sources, a German magazine reported that Deutsche Bank had held discussions with Commerzbank about a possible merger. People familiar with the matter also stated about the merger talks between the two companies.
However, at the Handelsblatt banking summit held on Wednesday in Frankfurt, Cryan mentioned that he is not looking for any alliance and intends to shrink the company. Later, in an interview with the CEO of Handelsblatt newspaper, Cryan stated that the company is focused on its restructuring initiatives “to make our bank a bit smaller in order to make it a bit simpler”.
When asked about likely acquisitions in the U.S. or in the Asian region, Cryan replied, “Not any time soon. Probably not in the U.S.”
At the summit, Cryan urged for consolidation in the European banking industry as he observes that the fragmentation in the sector is affecting bank profits. He stated, “We need more mergers, at a national level but also across national borders”.
In the interview, Cryan noted, “If we look at Germany in particular – and I take Germany as an example – it hasn’t gone through that wave of consolidation that very recently Spain has seen. Italy seems to be moving in this direction, and France has already been through it. But in Germany, there are too many banks. That leads to very strong price competition, which is good for customers, but less so for the solidity of the banking system. So I think Germany should consider, particularly some of the smaller banks, in teaming up and investing in the modernization of the system”.
While Cryan is expediting its restructuring efforts, profitability of Deutsche Bank remains threatened by a stressed operating environment with negative interest rates, sluggish European economy and global headwinds. Management continues to see a challenging revenue environment in 2016, specially post Brexit.
Also, while the company expects to settle significant cases this year, litigation headwinds are not likely to ease any time soon as the bank continues to grapple with numerous lawsuits and regulatory proceedings, in and outside Germany. Notably, Deutsche bank lost nearly 40% on the NYSE, year to date.
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Deutsche Bank currently carries a Zacks Rank #5 (Strong Sell). Some favorably placed stocks in the foreign banks include KB Financial Group, Inc. KB, Banco Macro S.A. BMA and The Bank of Nova Scotia BNS, each sporting a Zacks Rank #1 (Strong Buy).
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