November 15, 2017 / 7:01 PM / a year ago

Breakingviews - Cerberus puts German twist on distressed investing

People walk past a Deutsche Bank logo ahead the banks annual general meeting in Frankfurt May 21, 2015. REUTERS/Kai Pfaffenbach

LONDON (Reuters Breakingviews) - In Greek mythology, Cerberus was the three-headed dog that prevented the dead from leaving the underworld. Investors in Deutsche Bank will hope its financial namesake’s arrival as a major shareholder in the troubled lender is a more positive omen. But any hopes of reviving a merger with rival Commerzbank, where Cerberus Capital Management already owns 5 percent, rest with bigger beasts – including the German government.

Investments in public companies are relatively unusual for the firm run by Stephen Feinberg, which tends to specialise in distressed debt and private equity. The Deutsche Bank stake it disclosed in a regulatory filing on Wednesday is worth close to 980 million euros ($1.2 billion). That makes it the group’s second-largest direct investment in a listed company, according to Eikon. The Commerzbank stake is No. 3. Add in its remaining shares in Austrian lender Bawag - which recently went public more than a decade after being rescued by a Cerberus-led consortium - and the group’s portfolio of European bank stocks is worth about $3.8 billion. Even for a firm with more than $30 billion under management, that’s an intimidating bet.

Cerberus says it thinks German retail and commercial banking offers “attractive long-term opportunities”. That’s unlikely to be a sufficient explanation for its clients, which could buy Deutsche and Commerzbank shares themselves without paying the firm’s fees.

The latest disclosure will fan speculation that Cerberus is pushing to revive merger talks between Germany’s two largest private-sector lenders: they held abortive talks about a possible tie-up last year. Yet even though the German banking market remains highly fragmented, there are obstacles to a deal – not least Deutsche’s lengthy integration of its domestic Postbank unit.

Besides, other investors have more clout. At Deutsche, Cerberus currently ranks behind China’s HNA Group, which owns close to 10 percent, and funds controlled by Qatar’s al-Thani family. Any suitor for Commerzbank, meanwhile, will have to win over the German government, which still owns more than 15 percent. Rival European lenders including Italy’s UniCredit and BNP Paribas of France are also interested. If the two German banks do end up joining forces, Cerberus can do little more than wag its tail in approval.


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