Megamerger CS-Deutsche Bank: Not Now, But Not Off the Table Forever

megamerger, Credit Suisse, Deutsche Bank, Tidjane Thiam, John Cryan, Qatar

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The topic of mega-bank mergers continues to make the rounds – with Credit Suisse is in the midst. A transformational deal isn’t going to happen. But that could change in the not-too-distant future.

Urs Rohner, Credit Suisse chairman, displayed a sharp understanding of realities governing finance today. Asked last week about a potential merger between Credit Suisse and Deutsche Bank, he responded that such a move was «a thing of impossibility».

Regulators would never greenlight such a deal, since the current supervisory trend is to shrink banks, not allow them to bulk up, he remarked.

Ripe for Market Shake-Out

Rohner’s view is undoubtedly correct, and the current truism in Europe’s banking sector. This is shaped by two harsh realities: banks are notoriously undercapitalized, sagging revenue is countered with restructuring, job cuts, and strategic revamps in a oversaturated European financial market.

In principle, fertile ground for a market purge in the form of acquisitions or mergers.

The other reality is banking supervisors and regulators themselves. Some interest groups in the eurozone have effectively kept weaker players on life support with a series of rescue packages, while urging the firms to bolster their capital and shrink their balance sheets.

An Impossible Thing

In the current environment, a merger of two of Europe’s leading banks like Credit Suisse and Deutsche Bank seems to be an impossible thing indeed. How could either one or the other bank take the other’s positions on its books?

In fact, the idea of a Credit Suisse-Deutsche merger is years old. Looking back, it seems that the more troubled both institutes are, the more frequently the idea is recycled and given new life through the rumor mill.

Why Not Combine Forces?

The wish seems father to the thought that the once proud firms, now perilously close to the abyss, can get back on their feet again as soon as possible. 

The idea also seems to be tied to a European inferiority complex: the continent’s banks have lost precious ground to American rivals: the five largest U.S. banks have won more than 10 percent market share of global financial markets in recent years.

Forced to Change

Why not a European tie-up of established banks like Deutsche and Credit Suisse as a counter to the American attack?

Another compelling reason for a mega-merger on the order of Credit Suisse-Deutsche: banking is being forced to reinvent itself, to transform and to modernize.

In short, banks will be confronted with rising costs and sinking revenue. To counter this, they must invest in industrializing their processes, digitizing, focusing on fewer areas, and seeking synergies by partnering.

Well-Worn Arsenal

Mergers and acquisitions are one strategy for the finance sector to suit up for the future. Until now, these have mainly taken place at middle-sized firms, where complexity isn't as high as at large global firms.

There hasn't been any hint of a mega-merger – even though it is a frequently-used tool from players in other sectors under massive structural pressure.


It’s the reason behind the big merger of construction giants Holcim and Lafarge (Sika and Saint-Gobain are likely to follow eventually). In the extremely capital-intensive commodities sector, the big three – Rio Tinto, BHP Billiton and Glencore – still dominate.

Among brewers, Heineken, SABMiller, and Anheuser-Inbev have pulled out in front of the rest of the sector thanks to years of copious dealmaking. The agrochemicals business is also experiencing a shake-out: ChemChina wants to buy Syngenta, while Bayer is after U.S. competitor Monsanto.

New Order in Oversaturated Market

A new order and consolidation within Europe’s ailing and oversaturated banking market for a pan-european banking champion to emerge is therefore not completely off-base – but it’s not happening.

The reasons are well-known: too-high regulatory hurdles and too much complexity. Given the current health of Credit Suisse and its fellow sufferer in Frankfurt, a merger wouldn't make sense – two negatives don't make a positive, to use a mathematical reference.

Turning the Corner

This could change if Credit Suisse boss Tidjane Thiam and his British colleague at Deutsche Bank, former UBS banker John Cryan, keep working hard on a turnaround of their respective institutes.

It can safely be assumed that both firms will manage to turn the corner and display the structure, strategic direction and most importantly capital strength they are aiming for in the coming 18 to 24 months.

Typical Takeover Candidates

How would that leave Credit Suisse? Without its Swiss business, the bank will be a mid-sized private bank in an international comparison with a mid-sized investment banking operation – in the eyes of the renowned finance consultant Guenter Kaeser of KK Research, a takeover candidate.

The forecast for Deutsche Bank is similar: the German lender will be a domestic giant, and a mid-sized player in investment banking and wealth management.

This forecast is an open invitation to keep the idea of a Credit Suisse-Deutsche Bank merger alive. The fact that both firms have the same major shareholder – Qatar – doesn't rule out a megamerger. For the moment however, any such plan is adjourned.


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