France Is Germany's Big Banking Hope? That's Gotta Hurt
Comment of the Day

September 22 2017

Commentary by Eoin Treacy

France Is Germany's Big Banking Hope? That's Gotta Hurt

This article by Lionel Laurents for Bloomberg may be of interest to subscribers. Here is a section: 

That makes a merger attractive to buyers with an existing presence in the German market, such as UniCredit, which acquired HypoVereinsbank in 2005, or Deutsche Bank AG, Germany’s largest lender. Commerzbank and Deutsche Bank held discussions last year about a possible merger, before Commerzbank announced its new strategy. After the talks broke down, John Cryan, Deutsche Bank’s CEO, called for consolidation in Europe to help the region’s banks compete.

​The renewed interest in Commerzbank has been catalyzed by the investment of Stephen Feinberg’s Cerberus Capital, which already controls Austrian lender Bawag PSK Bank. Private equity firms such as Cerberus pool money from investors to buy companies, using additional debt to finance the transactions, in the hope of selling them for a profit later.

UniCredit executives have held discussions with German officials about a potential combination with Commerzbank once the lenders’ restructuring is complete, according to a person with knowledge of the talks. The German government would prefer a tie-up with France’s BNP Paribas SA, WirtschaftsWoche reported, citing unidentified insiders.

“UniCredit and Commerzbank have large restructuring plans underway, to be completed in 2019 and 2020 respectively,” Tom Kinmonth, a strategist at ABN Amro wrote in a note. “Either way, the interest and the turnaround in the German lender has brought great performance this year.”

Eoin Treacy's view

I remember the days when I was the Bloomberg account manager for just about all German banks in Luxembourg. That was back when old ladies turned up at the bank to clip coupons on their bonds at the end of the month and when meeting rooms all had money counting machines. In Kirchberg, queues of RVs form in the summer to pick up cash before driving down to the Mediterranean for their summer holidays. 

Back then Hypovereinsbank had so much debt, it had its own yield curve. Dresdner was a substantial organisation and I used to sit with their bond fund managers. Deutsche had a large operation and the asset management arm specialised in what could only be called complicated structures. Commerzbank had a gold desk and the city was spotted with the private banking offices of the various landesbanks. 

Today Germany has two listed banks, Deutsche and Commerzbank, everything else has been either nationalised or sold. There is a lot of speculation about a takeover of Commerzbank and the share continues to trend higher within a larger base formation. The upper side of the long-term congestion area is around €14 while a sustained move below the trend mean would be required to question current scope for additional upside. 

Deutsche Bank by contrast moved to new lows in 2016 and is now attempting to find short-term support. It needs to break this year’s progression of lower rally highs to even begin to signal more than temporary support has been found. Perhaps the most bullish point in its favour is that the German government is unlikely to allow Deutsche Bank to disappear. 

BNP Paribas is currently forming a first step above its base and a sustained move below the trend mean would be required to question medium-term recovery potential. 

Societe Generale, is firming from the region of its trend mean as it tests the upper side of its almost decade long base formation. 

Credit Agricole has a similar pattern. 

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