Deutsche Bank’s Future Lies in the Hands of These Six Players

By Steven Arons, Birgit Jennen and Nicholas Comfort
(Bloomberg)

Deutsche Bank AG ended 2018 as the worst-performing European banking stock following a string of scandals and what looks to be a weak final quarter. The steady drumbeat of bad news has revived speculation that Germany’s largest lender may be forced to seek a radical solution to its travails: A merger with Commerzbank AG, a domestic rival that came a close second to Deutsche Bank in terms of losing value last year.
A sense that the current malaise can’t be allowed to last has been growing. Here are the main people who could make or break such a move. Representatives for their institutions declined to comment.

Christian Sewing

Deutsche Bank’s chief executive officer still hopes to demonstrate that his turnaround plan — the bank’s fourth in as many years — will revive the company. Although he’s open to the idea of a merger in the future, he has said that nothing will happen before the end of this year as he still plans to complete other projects first, including the integration of Deutsche Bank’s two domestic retail units. He’s also holding out for a rebound of the lender’s share price that would help him avoid going into merger negotiations from a position of weakness. The 48-year-old Deutsche Bank lifer has accelerated a plan to exit unprofitable businesses while keeping a tight grip on expenses. So far shareholders have backed him, though their support could quickly fade if he can’t halt the stock’s slide after a brutal 56 percent decline last year. While Sewing has publicly ruled out a merger this year, he has said privately that he will need to rethink his approach if it becomes clear his current plan isn’t working.

Joerg Kukies

The deputy finance minister and his boss, German Finance Minister Olaf Scholz, are among the more avid supporters of a domestic banking merger. They see the financial crisis a decade ago as proof that Germany needs a strong lender and want to act before the next downturn hits. The sense of urgency is one reason Kukies has held more than a dozen talks with Deutsche Bank executives since assuming office last March, with at least some of those encounters touching on the bank’s strategic options.
The views of Scholz and Kukies also matter because Germany still owns just over 15 percent of Commerzbank after a 2009 bailout, which means the government is likely to have a stake in a merged company, according to people familiar. Such a stake could reassure investors in a crisis and it would leave the door open for the government to participate in a possible capital increase if that was necessary as a last resort.

Martin Zielke

Commerzbank’s chief executive officer has said that bank mergers can be a good way to achieve scale. He’s also open to merging with Deutsche Bank specifically, though he was a bigger fan of the idea in 2017, when Commerzbank’s market valuation almost doubled, according to people familiar with his thinking. Like Sewing, Zielke would like to show that his turnaround plan — unveiled just over two years ago and built around gaining market share while cutting costs — is delivering results. But he has recently had to admit that some assumptions had been overly optimistic, forcing him to abandon some of the plan’s key targets. He’s also been meeting regularly with Sewing recently and the two have discussed the merger among other things although it wasn’t a formal agenda item, people familiar have said.

Paul Achleitner

Deutsche Bank’s chairman has been crucial in shaping the lender’s strategy ever since he assumed his post more than six years ago. He’s also been important in the current talks about a potential merger with Commerzbank, having discussed the idea with the German government last year, people familiar with the talks have said.
That doesn’t necessarily mean Achleitner is in favor of the idea. As the bank’s chief liaison with large investors, he’s particularly sensitive to the bank’s shares, which have lost about 70 percent of their value since he took the job. That credibility-straining drop means he’s eager to see a rebound before his term ends in 2022 and ideally before the bank’s 150th anniversary in 2020, according to people who know him.

Felix Hufeld

The head of Germany’s top banking watchdog, BaFin, is unsurprisingly cautious about a merger. He doesn’t see M&A as an easy fix for big banks generally, and even less so when it involves lenders he perceives as weakened, according to people familiar with his thinking. Despite his reservations, he’s acknowledged that banking deals will probably happen and he would be more open to a tie-up between Deutsche Bank and Commerzbank if the two can improve their fortunes, the people said.
Hufeld isn’t Deutsche Bank’s only regulator, but his seat on the European Central Bank’s oversight arm amplifies his voice. Some of his colleagues have been more bullish on mergers generally, with ECB Executive Board member Sabine Lautenschlaeger recently calling discussions about German bank consolidation “a very positive idea.”

Stephen Feinberg

Most of Deutsche Bank’s largest investors agree with the CEO that a merger at the current share price would lock in its low value. However, Cerberus Capital Management LP’s CEO has more at stake because his firm is also a major Commerzbank shareholder, owning 5 percent of Germany’s second-largest listed bank. The fact that Cerberus has stakes in both companies means Deutsche Bank’s low share price wouldn’t dilute the private equity firm’s holding in a potential merged entity as much as for other Deutsche Bank investors.
Two other factors boost Cerberus’s influence: It’s been investing in a bunch of other banks, putting the company in frequent touch with German politicians and regulators, and its advisory arm has a consulting mandate with Deutsche Bank that ensures unparalleled access to decision-makers. While the private equity firm might back a merger if this improves the prospects of both banks, it isn’t currently pushing for a deal because it believes Germany is big enough to have two large lenders, according to people familiar with the matter.

To contact the reporters on this story:
Steven Arons in Frankfurt at [email protected];
Birgit Jennen in Berlin at [email protected];
Nicholas Comfort in Frankfurt at [email protected]
To contact the editors responsible for this story:
Dale Crofts at [email protected]
Andrew Blackman