German banking group Deutsche Bank has confirmed merger talks with local peer Commerzbank after several ineffective turnaround initiatives.
Deutsche Bank said that it will now review its strategic options, clarifying that the possibility of a deal is still uncertain.
“In light of arising opportunities, the management board of Deutsche Bank (XETRA: DBKGn.DE / NYSE: DB) has decided to review strategic options. In doing so, the management board of Deutsche Bank is focused on improving the growth profile and profitability of the bank,” Deutsche Bank said in a statement.
The confirmation concludes months of speculation regarding a possible consolidation between the pair.
The combination would create a bank with more than $2 trillion in assets.
However, red flags have been raised regarding the merger, given the struggling financial position of both the banks.
Moreover, the integration process is said to be complex and expected to result in thousands of layoffs.
Deutsche Bank has been struggling with its earnings since the financial meltdown.
Several leadership changes followed, including the appointment of Christian Sewing as its CEO.
In 2018, Deutsche Bank posted a net income of €341m, its first full-year net profit since 2014.
It struggled in the final quarter of 2018 however, with a net loss of €425m.
Besides, the bank got entangled in several legal issues. These include the recent raids at its offices over Panama Papers scandal.
Various business documents were seized during the raids, with two of its employees implicated in the matter.
The bank’s shares slipped to an all-time low of €7.90 soon after the raids.
In a message to employees, Sewing said: “I have consistently stressed that consolidation in the German and European banking sector is an important topic for us.
“We have to assess how we want to play a part in shaping it. Our stated aim remains to be a global bank with a strong capital markets business – based on a leading position in our home market in Germany and in Europe, and with a global network.”
Sewing further stressed that the bank will pursue only those options that make “economic sense”.
Commerzbank, which was bailed out by the German government to avert the financial crisis, also confirmed the merger talks.
The government currently holds a stake of around 15% in the bank.