Bank Merger Calls Meet Resistance

Rumors that Hans Eichel wants to see mergers between several of Germany’s big banks have been greeted coolly by the banks themselves. Banking executives say such talk should be forgotten as soon as possible. Mergers, they say, will happen if and when they make economic sense, not when politicians say the time is right.

"It is completely absurd to believe that politics can push banks into a merger," a source close to the German banking sector told Reuters in reaction to a report in the Der Spiegel newsweekly saying Eichel had urged banks to consider a merger, since he was concerned about the prospect of crisis-ridden German banks being taken over by foreign firms. A number of foreign players, including Credit Suisse and Royal Bank of Scotland, have expressed interest in the German market.

The German government is denying that Eichel ever expressed such views. A spokesman for the Finance Ministry described the reports circulating in the press as “utter nonsense.” Similar disavowals came from other sources close to the government who attended a recent round of talks on German banking structure between banks and the Finance Ministry with the heads of Deutsche Bank, Commerzbank, HVB Group and Dresdner Bank.

According to a report in the Financial Times Germany, the furor was triggered by the head of the Deutsche Bank, Josef Ackermann. He has repeatedly stressed the importance of getting his bank into good enough shape so as to prevent it falling prey to takeover by a large European competitor.

“There are no big -- really big -- banks operating in Germany. That is not only a challenge for banks, but for German companies on the whole," Ackermann said at a recent meeting of European bankers. The profit situation is somewhat worse than the turnover situation, and we have to work on that.”

No takeover plans

But Deutsche Bank sources say Ackermann is not planning any acquisitions of his own, at least not imminently. The priority for the bank at present is to make profits, which is why they are selling further property, which they then rent back. Such a strategy is common among Germany's troubled banks, which are emerging from their worst crisis in more than 50 years. Klaus-Peter Müller, head of the Commerzbank, which has posted significant losses this year, has also ruled out the idea of any spending sprees.

Analyst Dieter Hein sees no sign of an oncoming major merger. He believes the problem in Germany is the splintered bank market, which consists of three kinds of banks: state-owned savings banks, co-operative banks and private banks. Hein said that structure means the market share of each individual bank is too small, especially in the case of the larger players. While mergers could help boost capital and market share, recent takeovers of the HypoVereinsbank and Dresdner Bank have shown many banks have hidden problems that needed to be addressed before mergers could work.

"I would say it is very unlikely we will see a merger of two or three of the large banks over the next twelve months,” Hein said.

Commerzbank head Müller is not expecting a takeover, although his bank has been tipped as a potential candidate for the past decade. He has said he does not believe there will be any major changes to the bank's current structure until at least the end of 2004.

Change the system

Both he and Ackermann are trying to promote a general overhaul of the nation’s current banking structure, which would do away with the current three types of banks and clear the way for a consolidation of the sector, which would translate into mergers.

The two banking bosses have the backing of the International Monetary Fund as well as from analyst Hein, who firmly believes the German finance minister should liberalize the bank market and scrap the current advantages for state-owned savings banks.

“In merging private banks and saving banks, we would soon see growth and greater efficiency,” said Hein.

According to him, the big banks find the dense network of savings and co-op bank branches very attractive. But most analysts agree, no big mergers are likely to happen in the near future and certainly not before the big banks get their own households in order first.