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Deutsche Bank and Commerzbank Abandon Merger Talks

 London Merger talks between Germany’s two largest banks have dropped. Commerzbank and deutsche Bank declared Thursday they’d abandon merger discussions that began six weeks ago. Execution dangers, restructuring costs and the need to increase cash from investors to fund the deal could have outweighed the advantages, the banks said. A merger could have fulfilled politicians that want a national champion to provide funding for German businesses. The German government bailed Commerzbank into the year 2009 and still owns a stake of 15%. A deal could have created a bank with over $2 trillion in assets, firepower that might have been utilized to better compete with competitors in Europe and the United States.

But labour unions have been opposed, fearing a merger could cause the loss of 30, 000 jobs. EU regulators may have preferred a cross border merger that would strengthen the region’s financial system. Investors worried that a fusion of the struggling creditors could do little to solve questions over their plan and profitability while developing a bank which was too large to fail. After cautious analysis it became apparent that such a combination wouldn’t be in the interest of any bank shareholders or other stakeholders, said Commerzbank in a statement. Shares in Deutsche Bank were trading nearly 3% higher in Frankfurt after the talks were abandoned, while Commerzbank stock dipped 2 percent.

The door could open for another European bank to purchase Commerzbank. Italy’s UniCredit and ING of the Netherlands are reportedly intrigued in pursuing a takeover, although it isn’t clear whether the German government would approve of a deal. For Deutsche Bank, the end of talks with Commerzbank will be likely to spark questions regarding the future of its own investment bank, which delivers returns and has lost ground to Wall Street rivals. Financial Times reported this week that Deutsche Bank is in serious talks with the Swiss bank UBS about a merger of their asset management divisions. The newspaper stated that talks have been underway for a number of months. One scenario apparently under discussion might see UBS fold its own asset management division into that of Deutsche Bank in exchange for shares in the group. Doing this will help them compete with industry heavyweights like BlackRock and Vanguard.

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