The Deutsche-Commerzbank merger fiasco sheds light on how weak Germany’s private banking sector remains a decade after the financial crisis, in a national market dominated by highly competitive customer-oriented savings banks and cooperative banks. On April 25, 2019, both banks announced that their management boards had come to the conclusion that a German government-supported merger would “not provide sufficient added value.” German finance minister Olaf Scholz and his deputy Jörg Kukies, a former co-head of Goldman Sachs’ German and Austrian operations, had pushed the merger to create a banking champion large enough to meet the needs of the country’s globally operating companies. Since the German government holds a 15 percent stake in Commerzbank, a takeover of Commerzbank by Deutsche Bank would have been a smooth way to get rid of the government’s exposure.
What happens to Germany’s leading private sector banks in Terms of earnings and market capitalization also points to the broader troubling weakness of European banks. In the eurozone, banks in nineteen member states are supervised and regulated with a “Single Rulebook” under the first pillar of the so-called “Banking Union,” under which the supervision of larger banks was largely transferred from the national level to the Single Supervisory Mechanism at the European Central Bank.
Banks in Europe are struggling. The present head of the ECB, Mario Draghi, never raised interest rates in his eight-year-term and kept them close to zero through penalty charges for banks keeping euro deposits. In major countries such as Italy, banks are struggling under high amounts of non-performing loans. Some national economies are slowing down, and years of Brexit troubles past and future cause added insecurities.
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