The Latest In Deutsche Bank's Woes: Is A Merger In The Works?

German bank Deutsche Bank AG DB has suffered three consecutive years of losses and the company's head office was raided by German police officers in late November in connection with a money laundering investigation.

As one of the country's most important financial institutions for its export-oriented economy, the government is reportedly taking steps to allow a merger, according to a Wednesday Bloomberg report.

What Happened

Sources close to the matter told Bloomberg that German Finance Minster Olaf Scholz and Deutsche Bank CEO Christian Sewing are exploring ways to merge the bank with fellow German-based Commerzbank AG.

Doing so would combine two of the country's biggest lenders, but a potential roadblock in existing German laws would make such a combination too expensive to carry out.

The German government is exploring potential changes in existing laws to facilitate a merger at a much lower cost, Bloomberg said. One such change would consist of Deutsche Bank becoming a holding company and changing tax laws to make the creation of a holding structure more advantageous.

Why It's Important

Scholz has publicly expressed support for merging Deutsche Bank with Commerzbank. This will likely find resistance from lawmakers, as the German government is already Commerzbank's biggest shareholder.

Shares of Deutsche Bank spiked higher on the news, trading up about 7.4 percent to $8.95 at time of publication.

What's Next

Sewing has separately said publicly a merger or any large strategic action isn't the right move for Deutsche Bank at this time, as the company is looking to reach its financial targets for 2018 and 2019, Bloomberg said. Yet Bloomberg's sources said the executive privately indicated a willingness to reconsider his objective if it becomes clear the bank will fall short of its goals.

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