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Deutsche & Commerzbank Start Potential Merger Discussions

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Deutsche Bank AG (DB - Free Report) and Commerzbank AG are in talks for a possible merger, according to a report by Focus Magazine.

Notably, no formal mandate to undertake a merger has been issued yet, and Deutsche Bank is weighing other options as well. Cerberus Capital Management, a common shareholder of both the banks, is supposedly keen on the merger.  

However, if Deutsche Bank agrees to make a deal with Commerzbank, it is likely to lead to a huge financial setback for the German lender.

The push for merger has likely come from political pressure to avoid a potential foreign takeover of Commerzbank. Further, the collaboration is expected to raise Deutsche’s ranking from third to second, just after HSBC Holdings plc (HSBC - Free Report) . 

Earlier, in 2016, both the companies had come together to discuss the partnership. Per a Bloomberg’s article, Commerzbank was to be merged with a subsidiary of Deutsche Bank, following which it would have been listed on a stock exchange. However, the talks were unsuccessful.

Though Deutsche Bank reported full-year net income of €341 million ($389.4 million) for 2018 against net loss of €735 million at the end of prior year, it faced a number of headwinds throughout the year.

The German bank’s name was included in the list of troubled banks, after it failed the second level of the Federal Reserve’s stress test on qualitative shortcomings. Further, its credit rating of a class of debt cut was downgraded to the lowest ranking. Also, it continued to encounter a number of legal probes.

However, impressive cost saving strategy helped to keep the bank afloat. Also, for 2018, CEO Christian Sewing announced a cost cut target of €21.8 billion.

In six months’ time, the stock has lost 23.1% on the NYSE compared with slight decline recorded by the industry.

Deutsche Bank currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Itau Unibanco Holding S.A. (ITUB - Free Report) has been witnessing upward estimate revisions for the past 60 days. Also, the company’s shares have gained nearly 36.9% on the NYSE, in the past six months. It carries a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Banco Bradesco SA (BBD - Free Report) has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has jumped around 66.4% on the NYSE, over the past six months. The stock carries a Zacks Rank of 1, currently.

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