Deutsche Bank and Commerzbank begin merger talks - reports

Local media said the two had begun tentative discussions over a possible tie up, which would create Europe’s second-largest back after HSBC.

Germany’s Welt am Sonntag newspaper, the first to report the discussions, said the banks had come under political pressure to consider a deal. Deutsche Bank is a leading player in the global banking sector but in recent years has endured boardroom battles, been fined for failing to prevent money laundering and has seen persistent declines in revenues.

Commerzbank, the smaller of the two, is seen as vulnerable to a foreign takeover from rivals such as France’s BNP Paribas.

As at 1130 GMT, shares in Commerzbank were ahead nearly 5% while Deutsche had climbed 3%.

However, Michael Hewson, chief market analyst at CMC Markets UK, argued: “Last week’s decision by the European Central Bank to downgrade its growth and inflation forecasts could well have been the catalyst for this, given it is bad news for both banks, pushing as it does the likelihood of any upward move on interest rates further out into the future, with little likelihood that rates will go up in this decade at least.

“The reality is that neither bank is particularly profitable and with rates firmly in negative territory and margins already wafer thin, it’s hard to see the rationale for any type of merger. All it does is serve to market two rather large problems into one enormously big one.”