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That the merger of Deutsche Bank and Commerzbank has been canceled is good news for employees, taxpayers – and social democrats. Comment. Did you hear the sigh of relief in the thousands of bank branches? Nope? Didn’t you? But there was relief, I’m sure. Tens of thousands of bank employees will have been inwardly jubilant this Thursday morning when, shortly after half past ten, the breaking news ran: “Deutsche Bank and Commerzbank reject merger.” Because that means their jobs have been saved. Up to 30,000 jobs could have been lost as a result of the marriage of the money groups, but now this danger has been averted, at least for the time being. For employees in the financial sector, this Thursday was a good day. The failure had been announced for some time. The headwind had become too strong. Almost all experts from academia and the financial industry had said no, in surveys many Germans were against it, even among bank supervisors and the major shareholders of Deutsche Bank, such as Qatar, the U.S. investor Blackrock or the Chinese financial firm HNA, there were few fans of the merger.

Financial institutions with problems

There are reasons for the mistrust. Both money houses are in trouble. Deutsche Bank is still suffering from various criminal proceedings that cost billions of euros, it is suffering from a business model that generates too little profit, and it is suffering from the fact that its managers have been too slow to rebuild it for the future. The decline can be seen in the share price, which has now fallen from a high of 107 euros to a measly 7 (!) euros. The situation at Commerzbank is not much better. Although the bank has recovered somewhat in recent years, it continues to carry around burdens, such as a large number of Italian government bonds that have lost value. No one believed that a champion could have emerged from these two lame institutions. More likely, the merged Deutsche Commerzbank would have been busy with itself for years. It would have had to squeeze together what did not fit together.

Large banks harbor great dangers

The competition from savings banks and cooperative banks would have been pleased. They would have been able to extend their lead in profits and lending business; the foreign banks in Spain, France or the Netherlands would have done likewise, because they would have been better prepared for the future and a troublesome competitor would have been eliminated. And how great would the risk to the taxpayer actually have been? During the financial crisis, Angela Merkel promised that a bank would never again become so big that the state would have to bail it out, because otherwise the economy would plunge into the abyss (“too big to fail”). But the merged Deutsche Commerzbank would have left citizens trembling. By far the largest financial institution in this country would have been created – with 40 million private customers, 140,000 employees and total assets of 1.7 trillion euros. This corresponds to half of all goods and services generated in Germany each year.

Dresdner Bank as a negative example

The fact that such a giant can become a danger is not a pipe dream. One only has to look at history. Bank mergers have rarely been a success story; rather, they have resembled a big oven in which board members burned vast amounts of money. Examples? There was Dresdner Bank, which was passed around like a challenge cup at the turn of the millennium. First it was supposed to take over Deutsche Bank, then it ended up with Allianz – for 28 billion euros. A few years later, the value had dropped to nine billion euros, but it got a new owner: Commerzbank. And in order to survive the takeover, Commerzbank had to be supported with 18 billion euros from the state. 18 billion. Then there was the merger of real estate financier Hypo Real Estate (HRE), which later merged with Depfa, Deutsche Pfandkreditanstalt. During the financial crisis, HRE got into such a mess that the state had to bail it out with more than 150 billion euros in aid and guarantees. Damage to the taxpayer: 20 billion euros. Again: 20 billion.

For Olaf Scholz, the rejection is bad

And let’s not forget BayernLB, which took over Austria’s Hypo Alpe Adria in 2007. In the end, the adventure cost five billion euros, and who had to help? The Bavarian government and the federal government with billions of euros. Such potential risks from a merger are off the table. For the time being. No one knows whether Deutsche Bank will recover, nor whether the taxpayer will have to step in at the end of a possible bankruptcy. But no one knows the future anyway. The cancellation is only bad for Finance Minister Olaf Scholz (SPD). Behind the scenes, he had campaigned for the banks to merge. He wanted an influential credit house so that Germany would not be left behind in the financial world by competitors from Spain, France, the USA or China. For a finance minister, this is an honorable goal, but whether the merged bank would have done him the favor must be doubted in view of the distress of the houses. Scholz will cope with the defeat. After all, the merger would have cost many thousands of jobs and the loss would also have been blamed on him and his SPD. This Thursday, therefore, not only numerous bank employees breathed a sigh of relief – but also many Social Democrats. #issues

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FOCUS Magazine | No. 41 (2016) The debate: Take over Deutsche Bank! It is not the state that should save the ailing credit house, but German industry. It would be a patriotic act. And it would be worth it Deutsche Bank has not only become the plaything of speculators, as the institution’s chief executive, John Cryan, recently wrote somewhat unhappily to his staff, but also that of politicians. After all, Vice Chancellor Sigmar Gabriel sneered, the bank itself had made speculation its business model. He was right to do so, and yet he earned fierce criticism from his coalition partner. That doesn’t help the bank any more than the sometimes questionable expressions of solidarity from industry. BASF Supervisory Board Chairman Jürgen Hambrecht, for example, said that industry needs “a Deutsche Bank that accompanies us out into the world. He is also right. But his company did not mandate Deutsche Bank when it bought the coatings specialist Chemetall in the United States a good three months ago. Probably also because the bank lacks trust. Yet it meets the regulatory requirements, as Cryan emphasizes at every opportunity. At the moment, at least, and that is: if the fines for illegal transactions do not significantly exceed the 5.5 billion euros set aside for them.

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Money alone will not save Deutsche Bank

If the currently unprofitable bank manages to cut its costs, the economy does not collapse and (major) customers do not withdraw their money in the face of these uncertainties. Otherwise, the bank could very well need capital very quickly, especially since its financial resources are rather tight by international standards. But money alone will not save Deutsche Bank. What it lacks above all is a convincing business model. Driven by its supervisory board chairman Paul Achleitner, it wants to be a global investment bank, although it was precisely this line of business that has driven the money house to the brink of ruin since it bought Anglo-American investment houses Morgan Grenfell and, above all, Bankers Trust. In the video: “The market will pummel Deutsche Bank until government aid flows”

50 billion in bonuses

In essence, this never-corrected aberration is a “reverse takeover,” in which Deutsche Bank has lost its roots. A bank that was founded in 1870 to break the market power of the English and later also the American merchant banks, and that was a reliable partner for German corporations in their foreign business for many years. Until the late 1990s, when it was plundered by the proudly acquired successors of these same merchant banks as never before: Deutsche Bank has paid its employees in this area a total of around 50 billion euros in bonuses since 1999 – far more than its investment banking division has ever earned. That’s why Deutsche Bank doesn’t need state aid, but it does need the state’s help. For example, in an industrial policy solution, an option that will be outlined here in broad strokes.

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Solution: Rescue by German industry

To do this, Finance Minister Wolfgang Schäuble would have to approach the top addresses of German industry to forge a consortium that would buy about 30 percent of the shares and thus take over the bank in a way that was not hostile, but still unfriendly. The message would be clear: German industry will not let “its” bank fall. This step alone would abruptly end all bets against the institute. But that is not the end of the story. The representatives of the consortium would then have to give Deutsche Bank a new, viable strategy. For example, as a German universal bank that abandons large parts of its investment banking, especially trading in bonds and derivatives.

A new top management

But it would be important for the bank to retain and expand the part of its business that provides a bridgehead for the country’s companies in the world’s financial markets. To do this convincingly, the consortium would have to change the top management, especially on the Supervisory Board, but also on the Board of Management. Then, the groups could force a capital increase and not only attract new investors, but even make money as a result. After all, financial experts estimate that an unqualified commitment to the institute, together with a convincing strategy, will double the share price within a short period of time. This in turn would offset the dilutive effect of even a significant capital increase.

It would be a patriotic act

Of course, many details would have to be clarified in advance and the right people would have to be found to run the bank. But even then, success would not be achieved within weeks. But that’s not what investors expect. Above all, they want to see that the new goals are implemented consistently and, if necessary, brutally by a new management and new controllers. Viewed soberly, this would be a patriotic act, just like the founding of the bank. Moreover, it would be a fresh start and a “reverse takeover,” a credible return to the roots of the once-proud financial institution. Nevertheless, questions remain. For example, whether such an industrial policy solution is even possible today. Deutsche Bank

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Rhenish capitalism to the rescue

In the past, government and business have often worked together constructively, for example in the establishment of the RAG Foundation. Or in the government-moderated purchase of Dresdner Bank by Commerzbank.

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During the financial crisis, the deal prevented Allianz – which had bought Dresdner Bank in 2001 – from also having to be rescued with taxpayers’ money. The aviation group Airbus also came into being – at the European level – through the moderation of various governments. This was called Rhenish capitalism, and Germany did not do badly with it. So why not today? Especially since the interaction of government and business is commonplace in other countries as well.

Alternatives? Takeover by foreign banks

Moreover, the option makes sense. The German economy needs a domestic bank, for example when it comes to placing shares and bonds. After all, once an issue like this goes slowly, only one thing helps: the domestic market. Moreover, companies would do well not to expose themselves exclusively to financial institutions that are subject to foreign and sometimes arbitrary control and supervision. This raises the question of alternatives. If Deutsche Bank does not emerge from its self-inflicted crisis on its own, the bank could be taken over by Santander of Spain or BNP Paribas of France. Should the country stand idly by? Germany and its economy should still have a little more self-respect and will to survive. 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