By Tom Sims and Andreas Framke
FRANKFURT (Reuters) – Christian Sewing, the chief executive of Deutsche Bank, believes there is a strong case for a merger with rival Commerzbank, according to a person with direct knowledge of his thinking.
Sewing’s stance sets the stage for a showdown with unions fearing massive job cuts and some sceptical investors. The supervisory boards of both banks meet on Thursday.
Sewing sees multiple benefits of a merger, including “clear” dominance in its home market, scale, and shared technology costs, the person said.
Deutsche’s CEO also believes that a combined entity would improve the cost of funding, with “the best funding ever”, the person said. Jobs would be cut with or without a merger, the person said.
Deutsche Bank and Commerzbank declined to comment.
In past months Deutsche Bank’s CEO has urged investors to be patient, preferring to focus on internal restructuring before taking on a big project, according to other people with knowledge of his thinking.
The latest comments also contrast with the neutral tone set in a letter to employees on Sunday after both Deutsche and Commerzbank confirmed talks. Sewing said then that many factors could still prevent a merger.
Deutsche Bank would not have entered talks if the bank expected negotiations to fail, said a second person with knowledge of Sewing’s thinking.
The powerful Verdi labour union, which sits on the supervisory boards of both banks, has voiced fierce objections to a merger, saying that as many as 30,000 jobs are at risk over the long term.
Both banks currently employ 140,000 worldwide. A spokeswoman for Verdi said on Thursday that the union’s position hasn’t changed.
At least three of Deutsche Bank’s top investors have voiced reservations about a merger, according to three people with knowledge of the matter. Two of them are awaiting details from Sewing and his colleagues at Thursday’s meeting, two of the people said.
The ratings agency Moody’s said this week that a successful tie-up may lift the banks’ profit but earnings would still remain below global competitors and a deal now would delay their current overhauls.
“We would view the impediments to execution on such a deal as very significant,” it said.
Some German officials have pushed for a merger because they want a strong bank at home to compete with U.S. and Chinese competitors.
However, euro zone banking watchdogs on Thursday said banks planning mergers should make sure they could be wound down in a crisis to avoid taxpayers having to pay for any bailout.
“If a bank becomes too big, complex or interconnected… it needs to have additional capital,” the ECB top watchdog Andrea Enria said, when asked in the European Parliament about a possible tie-up between Deutsche Bank and Commerzbank.
Since the financial crisis a decade ago, European banks remain relatively weak compared with their U.S. counterparts, said John McFarlane, chairman of Barclays , and it will take a while for them to recover.
“Even if you get consolidation in Europe, take Deutsche if that ever happens, it will still be less than 10 percent of JPMorgan’s market cap and still be smaller than Royal Bank of Scotland,” he said.
(Reporting by Tom Sims and Andreas Framke; Additional reporting by Hans Seidenstuecker in Frankfurt and Huw Jones in London; Editing by Keith Weir and Elaine Hardcastle)