(Bloomberg Opinion) -- Every day on my way to work, I pass a branch of Deutsche Bank AG and a Commerzbank AG outlet located almost exactly opposite each other on different sides of the street.
One of them will probably close if the government-backed merger talks between the two lenders come to fruition – but I doubt the companies are up to making the massive job cuts the combination would require.
Economy Minister Peter Altmaier and Finance Minister Olaf Scholz are eager to see a banking national champion emerge to support a new, muscular industrial policy that seeks to ensure German and European companies are competitive against their Chinese and U.S. rivals.
But ensuring such a champion is not just big but also efficient would require massive job cuts: Investors and analysts have bandied around the figure of 30,000 out of a combined workforce of about 141,000.
Bloomberg News reports that Scholz, a Social Democrat, has agreed not to oppose the cuts – but his center-left party, now fighting for survival after devastating election losses, is unlikely to take kindly to an employment bloodbath that already has key labor unions up in arms.
Nothing in the recent behavior of Deutsche Bank or Commerzbank’s managers betrays a ruthless ability to cut jobs, even though both firms badly need to do so if they are to reduce their excessive costs.
Deutsche Bank boasted that it ended 2018 with the lowest number of employees since acquiring Postbank in 2010 – but that’s only about 6,482 fewer than in 2012. Commerzbank has eliminated 4,601 jobs since 2012. At this rate, cutting 30,000 posts would take more than 16 years.
There’s a reason why Germany’s two biggest banks are so slow to wield the ax. At Commerzbank, seven of the 20 supervisory board members are worker representatives, and another two are functionaries of Ver.di, a powerful labor union that represents service industry workers. Out of the 20 members of Deutsche Bank’s supervisory board, six represent the works council, two are from Ver.di and one is from DBV, a bank employees’ union.
In line with the German tradition of giving workers broad access to running companies, the two banks’ managers have had to negotiate all their cuts with the powerful works councils and unions.
In 2017, Commerzbank reached an agreement with them to reduce its workforce by 9,600 people by 2020 – as far as possible through attrition and early retirement. But when the bank announced results for the fourth quarter of 2018, it canceled the goal, saying it needed people because of business growth and a labor-intensive information technology transition. Since costs eat up about 80 percent of its revenue, a sector high, it’s more likely the bank has simply been unable to let enough people go on terms they, the works council, and the union could accept.
When it was negotiating the integration of Postbank with its unions, Deutsche Bank ruled out making layoffs until the middle of 2021. Instead, it offered voluntary buyouts and early retirement. The reason it has managed to trim staff by as much as it has is that the uptake has been good. It would be enormously costly, however, to slash 30,000 jobs that way.
Both unions, Ver.di and DBV, have made it clear in scathing statements that they are against the merger. Ver.di pointed out that after merging with Commerzbank, Deutsche Bank would need a new plan – a third one – for the Postbank integration. DBV, for its part, demanded that any plans for the process be put on ice until there’s clarity on the mega-merger.
The German government is unlikely to put pressure on the two banks if they see no way to square the circle with the unions and works councils. Helge Braun, Angela Merkel’s chief of staff, told Bild that preserving jobs would be “very, very relevant” in any discussions. “There’s no singular political motivation to strive for this merger now,” he added. “There must be a business one.”
That’s an important signal from Merkel’s close ally to the managers of the two banks: Unless they have a compelling vision for the deal that would give them an appetite for extremely tough negotiations with workers and unions, they shouldn’t go through with it.
Scholz’s reported green light for job cuts doesn’t mean anything more than the bankers can start to negotiate both internally and with each other. The current government, an uneasy coalition between Merkel’s Christian Democrats and the Social Democrats, cannot afford an outcry over job destruction, especially as the latter party is trying to reclaim its reputation as a protector of the workers.
So far, analysts looking at the merger have struggled to come up with any clear advantages for the deal other than the combined entity’s size. The politics of the job cuts needed to make the mega-bank efficient may well outweigh that rather dubious gain.
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Leonid Bershidsky is Bloomberg Opinion's Europe columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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