For the first time since 2014, Deutsche Bank could make a profit again in the past financial year – but the American competition has long been hurried. How should it continue?

These numbers can be a fear and anxiety about the Deutsche Bank  . Major US banks such as Citigroup, Wells Fargo, Bank of America, Goldman Sachs and JP Morgan all posted earnings of nearly $ 110 billion for 2018 this week. Only the industry leader JP Morgan increased its profit by more than a third to 31 billion dollars (27 billion euros). For comparison: The current market value of Deutsche Bank is just 15 billion euros. 

Improvement is not in sight. For the balance sheet proposal of the largest German bank in two weeks, the analysts expect only a surplus of about 400 million euros – so much money earned JP Morgan in just five working days.

Bad omen

A particularly bad omen for Deutsche Bank may be the fact that the American competitor recently had great difficulties trading in bonds, currencies and commodities. In these sectors – the few in which Deutsche Bank also earns money – business in the last quarter of the year was as weak as it had been since the financial crisis. Despite the record, the figures for the year as a whole still lagged behind the expectations of many experts. Even without the tax reform initiated by US President Donald Trump, there would have been a record win, according to JP Morgan leader Jamie Dimon.

Deutsche Bank - Christian Sewing (picture-alliance / dpa / A. Dedert)
Christian Sewing – the CEO of Germany’s largest financial institution is very optimistic.

Notwithstanding these figures and the sharp decline in their share prices from around € 100 in 2006 to less than € 10 in 2018, Deutsche Bank is one of the largest and strongest institutions in Europe. They have high reserves and have the costs under control, market and credit risks are as low as rarely before, said the Chief Executive Christian Sewing recently at the capital reception of his house. The Bank has also considerably reduced its legal risks in recent years – an area in which billions of euros were incurred as a result of legal violations and the resulting penalties and claims for damages.

CEO is self-confident

“We want to eliminate the suspicions associated with the Panama Papers as soon as possible,” said Sewing in this context, emphasizing that there is no evidence of misconduct of his house in the case of Danske Bank, which as in the Panama Papers to the suspicion money laundering goes.

“We are by far the largest bank in Europe’s largest economy, and we are one of the four most systemically important banks in the world,” Sewing proclaimed confidently, stating that “systemic relevance” is by no means a quality mark, but even threatening ( too big to fail).

JP Morgan Chase Headquarters in New York (Timothy A. Clary / AFP / GettyImages)
The US bank JP Morgan Chase is far from the competition from Germany.

Fusion fantasies are driving share prices

On the other hand, Sewing did not enter into speculation about a merger with Commerzbank – they got new food on Wednesday (January 16, 1919): Deutsche Bank and Commerzbank were in the spotlight on the German stock market. According to the “Handelsblatt”, the federal government, which still holds 15 percent of the Commerzbank shares as a result of the financial crisis, is behind the scenes promoting a merger of the two financial institutions.

The stock prices of the two banks then got off to a good start after a Bloomberg report in the afternoon, according to which the European Central Bank (ECB) and the BaFin Financial Supervisory Authority prefer a merger with a European credit institution. Deutsche Bank shares shot up by 8.4 percent to 8.11 euros. They were not higher than they had been for nearly five weeks and were by far the biggest Dax winner. Commerzbank shares gained 7.4 percent.

But behind such price rises is more likely to hope for quick profits, the sustainable meaning of such a merger investors do not believe. “Basically, we believe that a merger between Deutsche Bank and Commerzbank is currently neither necessary nor meaningful,” quoted the “Handelsblatt” a large shareholder. The courses promptly gave way on Thursday. 

Trade unions remain skeptical

The trade unions also think little of a merger of the two most important German commercial banks. They fear a significant job reduction, but at the same time expect no strengthening of business models. “Both houses have their own, very different problems stored,” says Stephan Szukalski, head of the union DBV. Do not solve these problems with a merger, but enhance it. “Such an entity would be self-absorbed for many years, with uncertain outcome, and thus the worst solution for employees, customers, shareholders and, moreover, for the taxpayer.”

However, since the development in the financial markets, the refinancing costs for banks has risen sharply since December and the US competition seems almost overwhelming, according to insider reports, all parties agree that in the next twelve months at the Deutsche Bank “something must happen ” – only what?

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