April 17, 2019 / 11:22 AM / 6 months ago

Breakingviews - German banking tie-up brings out balloon-floaters

The logo of ING bank in central Brussels, Belgium November 7, 2012. REUTERS/Yves Herman

LONDON (Reuters Breakingviews) - Deutsche Bank’s tie-up talks with Commerzbank are providing a field day for Europe’s financial balloon-floaters. The latest is the idea that Dutch lender ING Groep has expressed interest in chaining itself to Commerzbank, reported in Germany’s Manager Magazin. The possibility won’t impress ING shareholders but it gives Commerzbank an extra dash of lipstick and, along the way, sends a message to Dutch regulators about rigid local bank rules.

A report earlier this month that Italy’s UniCredit was interested in Commerzbank helped put extra pressure on Deutsche Bank Chief Executive Christian Sewing to arrive at terms for a union with his smaller domestic rival in an effort to create the profitable and stable banking behemoth that Berlin craves.

If ING is also in the game, that’s another splash of leverage for Commerzbank in its negotiations with Deutsche. Yet it would make little sense from an ING shareholder perspective. The 47 billion euro lender has made decent inroads in Germany, Europe’s biggest banking market but one of the toughest in which to make money. But its 8 million customers and 150 billion euros of deposits are serviced entirely online, reflecting the IT-centric strategy that has given Chief Executive Ralph Hamers some of the euro zone’s leanest performance measurements – a 60 percent cost-to-revenue ratio for last year, and a 13.5 percent pre-tax return on equity, according to Refinitiv data.

Commerzbank is only worth 10 billion euros, but its bloated 87 percent efficiency ratio last year and dismal 4.4 percent pre-tax return on equity would weigh ING down. And it would be a challenge to improve the performance of Commerzbank by closing branches and laying off thousands of cashiers. That would outrage German unions, even if job losses were less than the 30,000 mooted from a Deutsche merger, and it still might not move the needle enough in Germany’s structurally inefficient banking market.

Even so, the suggestion in the Manager Magazin report that Hamers might move an ING-Commerzbank headquarters to Frankfurt serves, intentionally or not, as an alert for his political masters in Amsterdam. Dutch financial-services regulations are among Europe’s tightest, capping bankers’ bonuses at 20 percent of their basic pay, for example. In Frankfurt that could conceivably rise to 200 percent. That’s worth blowing up a balloon for.

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