Deutsche Bank confirms merger talks with Commerzbank

Deutsche Bank and Commerzbank logos

The possibility of Germany's two largest banks merging, dubbed a historic moment for the country's economy, is still all up in the air.

Holger Schmieding, chief economist at Berenberg bank, told the BBC that the German government's "concern about job losses seem to be more than outweighed by this desire to have industrial policy - a deliberate policy to create a bigger domestic bank".

Deutsche Bank, Germany's biggest bank, and domestic rival Commerzbank have made a decision to open talks on a possible merger, the lenders said Sunday in an announcement that followed months of speculation about such a combination.

Banners of Deutsche Bank and Commerzbank are pictured in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, September 30, 2016.

Deutsche Bank was set on Sunday to confirm merger talks with Commerzbank, according to a person with knowledge of the matter, an indication that efforts to combine Germany's two largest lenders are gaining pace. The companies confirmed the move to deeper discussions in statements on Sunday, capping months of speculation and behind-the-scenes talks with the finance ministry. This prompted Reuters to conclude that the official disclosure of talks boosts the chances that both banks conclude the agreement.

The government is also anxious about Deutsche, which has struggled to generate a strong profit since the financial crisis over a decade ago and has been damaged by losses at its U.S. investment banking operations.

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If the merger goes ahead the bank would have one fifth of the German retail banking market.

Hans Michelbach, a lawmaker from the Christian Social Union (CSU), the Bavarian sister party of Chancellor Angela Merkel's Christian Democratic Union (CDU), urged the government to sell its 15 percent stake in Commerzbank before a deal. Finance Minister Olaf Scholz and his deputy, former Goldman Sachs Germany boss Joerg Kukies, are keen to consolidate public-sector banking in Europe's largest economy.

The supervisory boards of both banks are due meet on Thursday, with the merger likely to top the agenda.

"Some 20,000 or more jobs could come under fire", Bsirske said, adding that safeguarding jobs was a priority for Verdi, and that he expects tense discussions about this at both banks.

Commerzbank, like Deutsche, has struggled to rebound, and German officials say it is vulnerable to a foreign takeover.

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