By Tom Sims and Arno Schuetze
FRANKFURT (Reuters) - Deutsche Bank and Commerzbank said their merger talks had ended, with execution risks, restructuring costs and capital requirements dashing German attempts to create a mega-bank.
After nearly six weeks of talks, Germany's two largest banks announced on Thursday that high-level negotiations about a tie-up had ended, confirming an earlier Reuters report.
"We have concluded that this transaction would not have created sufficient benefits to offset" the risks and costs, Deutsche Bank Chief Executive Officer Christian Sewing said in comments echoed by his Commerzbank counterpart Martin Zielke.
The prospect of a merger met fierce opposition from the workforce, with unions fearing 30,000 job losses, and concerns of investors and regulators.
German government officials, led by Finance Minister Olaf Scholz, have pushed for a tie-up to create a national banking champion and end questions over the future of both banks, which have struggled to recover since the financial crisis.
Shares in Commerzbank were 2.2 percent lower at 0905 GMT, while Deutsche Bank's were up 4.4 percent.
The inability to craft a deal will increase pressure on Deutsche Bank to make more radical changes, such as cuts to its U.S. investment bank that regulators and some major investors have been advocating. Deutsche is already looking at a deal for its asset management unit.
"Deutsche Bank will continue to review all alternatives," Germany's largest bank said.
Employees of both banks immediately welcomed the news.
However, one senior manager at Commerzbank acknowledged the failure opens the door to further uncertainty as foreign competitors approach.
"It is clear that others will now come out of the woodwork with offers and ideas," the manager said.
Commerzbank's chief executive Martin Zielke, has told employees that "the alternative of doing nothing is not an option".
Both Unicredit and ING Groep have expressed interest in Commerzbank, which is Germany's No. 2 lender, sources have said.
Some major Deutsche Bank investors had questioned the deal's logic and were unwilling to step up with any extra cash to get it done, while credit ratings agencies had warned of risks.
The European Central Bank would have asked Deutsche Bank to raise fresh funds before it gave the go-ahead for a merger, a person with direct knowledge of the matter said.
And the ECB's single supervisory board, which is scheduled to meet on Thursday, had not received a formal application from the banks about a merger, another source had said.
Deutsche Bank on Thursday also published preliminary earnings in which it said it expects to post a first-quarter net profit of about 200 million euros (173 million pounds), beating analysts' expectations of 29 million.
(Reporting by Hans Seidenstuecker, Andreas Framke, Arno Schuetze, Tom Sims, Francesco Canepa, Frank Siebelt; Editing by Sabine Wollrab, Tassilo Hummel, Michelle Martin and Alexander Smith)