stockbeat-deutsche-bank-commerzbank-rise-after-confirming-merger-talks

StockBeat: Deutsche Bank, Commerzbank Rise After Confirming Merger Talks

© Reuters.  © Reuters.

By Geoffrey Smith

Investing.com -- All aboard the good ship Moral Hazard!

Common sense may suggest that combining two weak banks doesn’t make a strong one (anyone remember Bankia?), but Deutsche Bank (DE:) and Commerzbank (DE:) are both up sharply this morning after the two finally confirmed the worst-kept secret in European banking at the weekend.

At 04:00 AM ET (0900 GMT), Deutsche was up 3.2% while Commerzbank was up 3.4% at a new 2019 high. Germany’s was up 0.1% while the benchmark was up 0.92 points, or 0.2% at 382.02. The U.K. was up 0.6%.

Try not to think about the banks’ obvious lack of enthusiasm for a deal that would create the euro zone’s third-largest institution by assets: Deutsche Bank CEO Christian Sewing’s message to his employees couldn’t have hedged his bets any harder if he’d tried, while Commerzbank restrained itself to a single sentence, that lacked any words such as ‘opportunity’ or ‘value creation’.

And never mind how hard it will be to lay off enough German bankers to realize the hoped-for cost efficiencies (union bosses estimate at least 20,000), or the extra layer of IT complexity to a bank (Deutsche) that was called by its last IT head the most ‘dysfunctional’ place she’d ever worked in.

And whatever you do, don’t worry that the single most influential shareholder in the merged bank could be the very government that has structured its own banking market for years in favor of state-owned and cooperative banks that have other priorities than profit.

Only two things matter today for markets: first, the two have finally admitted that neither bank can save itself by its own efforts, a conclusion that most analysts reached some time ago. Second, a Deutsche-Commerzbank merger creates, for all practical purposes, a bank that will never be allowed to fail. In the short term, that should depress funding costs and support Deutsche’s investment banking business, in particular.

Both stocks currently trade at around a quarter of their book value, so investors can be forgiven for thinking that the short-term downside risk is limited. Where it leads in the long run is a story for another day.

Disclaimer: Fusion Media

would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.