Commerzbank and Deutsche Bank call off merger talks, as analysts await next steps

Commerzbank and Deutsche Bank have called of merger talks blaming the execution risks, restructuring costs and additional capital requirements that such a large-scale combination would entail.

Commenting on the lenders' decision to end negotiations, analysts at RBC pointed out how that simply having begun them in the first instance "suggests that current strategies are not working towards the expected targets".

To take note of too, their €8.0 target price on Commerzbank included a €1.0 per share takeover premium and the merger talks might in fact have resulted in "some disruption" to its strategy for acquiring new customers.

RBC also shrugged its shoulders at the suggestion that rivals UniCredit or ING might now table their own bids for Commerzbank, arguing that it made more sense for each franchise to stick to their current strategies; namely, de-risking its non-core portfolio and focusing on organic growth via the digital space, respectively.

In a statement, Commerzbank said: "It made sense to evaluate this option for domestic consolidation in Germany.

"After thorough analysis, we have concluded that this transaction would not have created sufficient benefits to offset the additional execution risks, restructuring costs and capital requirements associated with such a large-scale integration."

For its part, Deutsche Bank said it would continue to review all the options available for boosting long-term profitability and shareholder returns.

RBC said: "The question is whether DBK will announce a more material strategic update now and what that could be.

"The risk is that a potential strategic update will be either long dated or shorter dated but might come with material upfront costs."

The Canadian broker further noted how consensus was anticipating a 2019 return on tangible equity of just 1.5%, versus the lender's own target for at least 4%.

Separately, Deutsche pre-announced some of its key first quarter performance metrics.

Management was anticipating profits before tax of roughly €290m (consensus: €141m), including approximately €600m-worth of full-year 2019 bank levies.

Including those levies, total non-interest expenses and adjusted costs were each seen at €3.3bn and revenues at €6.4bn (consensus: €6.3bn).

Its Tier 1 capital buffer meanwhile was seen edging up from 13.6% in the year ago quarter to 13.7%, amid loan growth at its Private & Commercial Bank and Corporate & Investment Bank, while wealth management recorded positive net inflows.

As of noon, shares of Commerzbank had slipped 1.96% to €7,64 while those of Deutsche Bank were trading 3.70% higher at €7.90.