By Lina Saigol
Deutsche Bank’s finance chief said on Tuesday that Germany’s biggest lender was working hard to prepare for a coming wave of mergers in the banking sector.
“For Deutsche Bank /zigman2/quotes/205584254/delayed DE:DBK -0.45% , we’ve been very focused on executing on our own strategy, and we think that strategy would prepare us to engage in merger activity when the time comes and the right opportunities arise,” James von Moltke told a Bank of America Securities conference.
“So we are expecting this wave but we are also working hard to prepare on our side,” he said, adding that he supported the “appropriate or valid industrial logic” of mergers.
His comments, reported by Reuters , come while talk of consolidation among Europe’s banks is heating up as they look for ways to boost their return on equity — a key measure of profitability — after being weighed down by a decade of low interest rates, which have hit margins on loans, as well as higher regulatory burdens.
On Friday, the boards of Spain’s CaixaBank /zigman2/quotes/203420110/delayed ES:CABK +3.42% and its state-owned rival Bankia approved a merger that will create the biggest bank in the country by market share in retail operations. The combined group will have more than €650 billion in assets and a combined market capitalization of almost €171 billion. The deal still needs to be approved by shareholders of both banks, with meetings expected to take place in November.
Meanwhile, a report in Bloomberg on Sept. 8., citing people with knowledge of the matter, said that Spain’s Banco de Sabadell /zigman2/quotes/206753237/delayed ES:SAB +8.40% is working with Goldman Sachs on strategic options including a sale, merger, asset disposals or purchase of a smaller rival.
The news agency also reported on Monday that Italy has asked UniCredit /zigman2/quotes/200769686/delayed IT:UCG +5.39% executives if they would be interested in buying the government’s majority stake in Banca Monte dei Paschi di Siena /zigman2/quotes/202470451/delayed IT:BMPS -0.25% .
European bank mergers will also accelerate the closure of bank branches across the region, as lenders look to take out costs and adapt to a shift in customer habits fueled by the pandemic.
On Tuesday, Deutsche Bank /zigman2/quotes/203042512/composite DB -1.56% said it plans to close 100 branches across Germany, reducing the total number of domestic branches to around 400 “as soon as possible.”
The decision follows a move by smaller rival Commerzbank /zigman2/quotes/200193353/delayed DE:CBK +2.28% which said in June it wouldn’t reopen 200 of around 1,000 branches that were shut during the pandemic. While, in August, Credit Suisse /zigman2/quotes/202835784/composite CS -2.12% said it would close a quarter of its 146 domestic branches by the end of the year. The Swiss-based bank forecast this would lead to annual cost savings of about SFr100 million francs ($110 million) by 2022, some of which will be invested in digitization.
A recent report by global consulting firm partnership Kearney predicted that 25% of bank branches — around 40,000 — will close across Europe in the next three years, as new customer habits around digital banking, forced by the pandemic, become permanent.
Kearney’s European Retail Banking Radar also predicted that 70% of account opening, deposits, and consumer loan applications will take place digitally in the next three years.
Bank executives and policy makers have for years been pressing the need for European bank mergers to compete with their larger U.S. rivals. But even though the European Central Bank, as the area’s single bank supervisor, has pushed in principle for a trans-border consolidation of the sector, it has also insisted that banks clean their balance sheets of the bad loans inherited from the euro crisis.
Merger talks between Deutsche Bank and Commerzbank were abandoned just six weeks after they started last year, after the two German lenders were unable to overcome the complex challenges of integrating the banks’ technology, back offices and other operations.