What's going on?

Talk heated up on Thursday concerning a potential merger between Germany�s second-largest bank � Commerzbank � and a pair of possible partners. The result could be a new European banking giant!

What does this mean?

While a deal isn�t imminent, Reuters reported that UniCredit (Italy�s largest bank) is interested in buying Commerzbank, while it was also reported that the German government would prefer a tie-up with BNP Paribas (France�s largest bank). The German government owns 15% of Commerzbank, and it�s indicated that it does want to sell its stake at some point (which is conducive to a deal happening).

Why should I care?

For markets: A bank merger in Germany would likely be positive for investors.


Bank earnings have been falling for 15 years in Germany. Part of the reason is that there are simply a lot of banks competing with each other (unlike in other countries, where there are often a handful of dominant banks). Mergers within the industry are one way to bring costs down and improve profitability. UniCredit already owns a German bank � HVB � so it potentially has more to gain than BNP Paribas in this respect: a tie-up with Commerzbank would mean lots of overlapping costs could be cut (which would help to explain why both UniCredit and Commerzbank�s stock prices were up more than 2% on Thursday).

The bigger picture: Politics could complicate this deal.


The German government is like an �in-law� to any potential suitor of Commerzbank � i.e. it has some say. So there are substantial political considerations in addition to economic ones; it will want to make sure that any bank merging with Commerzbank is one that it feels comfortable with. While this rationale implies that the German government may want a German bank to buy Commerzbank, a domestic merger would likely mean more German job losses as there would be more overlap in roles � so the government has plenty of factors to consider.