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Time is running out for Deutsche Bank to turn around on its own - sources

The financial district with the headquarters of Germany's largest business bank, Deutsche Bank , is photographed on early evening in Frankfurt, Germany, January 29, 2019. REUTERS/Kai Pfaffenbach

FRANKFURT (Reuters) - Time is running out for Deutsche Bank to turn around on its own, making a merger with rival Commerzbank more likely, two people with knowledge of the matter said on Thursday.

Bank executives, analysts, government officials and some investors thought until some months ago that both banks had more time to turn around independently, but that opinion has recently changed, said one of the people.

A major investor is awaiting market reaction to both banks' earnings over the next couple weeks before deciding on the need for a merger, said a second person close to the investor.

"Then we will decide whether we will change our view," the person said. The investor wouldn't oppose a merger if the government wanted one, the person said.

Deutsche Bank, Commerzbank, and the German finance ministry declined to comment.

Speculation of a merger between the two has heightened under the tenure of Finance Minister Olaf Scholz, who has spoken in favour of strong banks. His team has met frequently with executives of Deutsche, Commerzbank and major shareholders.

Deutsche Bank Chief Executive Officer Christian Sewing has repeatedly said in public that he was focused on the bank's "homework" - returning the bank to profitability after three years of losses.

Earlier Thursday, a source at Deutsche said the bank was focused on achieving sustainable profitability, seeking to distance the lender from talk of a merger with Commerzbank.

The suggestion that such a merger is the only option for Deutsche is "completely false", said the source, speaking on condition of anonymity.

Shares in both lenders tumbled on Thursday after Bloomberg reported that Deutsche was expecting a government-brokered merger with Commerzbank by mid-year if efforts to restructure the lender fall short of targets.

Deutsche shares closed 4 percent lower, while Commerzbank was off 6.7 percent.

On Friday, the bank will report its 2018 results and analysts expect it to deliver its first annual profit since 2014.

CEO Sewing is also likely to face further questions about a possible merger.

A Deutsche supervisory board member said last week that there was no desire among board members for a merger with Commerzbank.

Gildas Surry, a portfolio manager with Axiom, which holds Deutsche Bank bonds, said that merging the two banks would be like mixing oil with vinegar, with questionable cost and revenue synergies.

But those hurdles may not be enough to sway governments pressing for banking consolidation. "It is very difficult for politicians to forgo their national champions," he said.


(Reporting by Andreas Framke, Arno Schuetze, Hans Seidenstuecker and Tom Sims; editing by Tassilo Hummel, Jason Neely and David Evans)