Commerzbank CEO Says Merger Would Add Much-Needed Scale

(Bloomberg) -- Commerzbank AG Chief Executive Officer Martin Zielke, almost three weeks into formal discussions about a merger with Deutsche Bank AG, told employees that a deal could help the bank get the scale for necessary investments to pay off.

“Organic growth has one disadvantage: you need time to substantially increase your market share,” Zielke wrote in a memo seen by Bloomberg. “That’s why we are also currently looking at alternative options for growth.”

The comments, days before Commerzbank is expected to decide on whether to intensify the talks or break them off, are the clearest indication yet of Zielke’s thinking. The two banks are leaning toward proceeding with the discussions and are close to a consensus on the rough outlines of a potential deal, people familiar with the matter said Thursday.

While Commerzbank’s strategy of aggressive client acquisitions was working, low interest rates were creating pressure on profits with no end in sight, Zielke said in a memo seen by Bloomberg. At the same time, regulatory expenses had increased and clients were demanding quick and digital banking solutions, he wrote.

“What you should take away with you: the alternative of doing nothing is not an option,” Zielke wrote. “We will take further steps in order to increase our growth and our profitability. At the end the question will be whether a potential tie-up makes strategic and economic sense and how such a model could look like.”

A Commerzbank spokesman declined to comment on the memo.

Since Deutsche Bank and Commerzbank entered into formal merger negotiations last month, they have been in daily contact, the people said. Zielke in particular has been pushing for a quick decision, one person said. Commerzbank’s biggest shareholder is the German government. The Finance Ministry, which oversees the stake, has encouraged a deal, though other lawmakers have signaled opposition.

Zielke in the memo acknowledged that the government had an interest in having a financial institution big enough to support the needs of the economy, while denying that the talks were driven by the government.

“Political interests have played no role in our decision-making progress,” he wrote. “We are assessing what makes strategic and economic sense for our employees, customers and shareholders.”

Commerzbank has a market share of 20 percent in the business with medium-sized corporate clients in Germany, and 10 percent in retail banking, Zielke wrote. “That is not yet sufficient.”

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