Deutsche Bank: tragedy with a happy ending?

Now it is time to pay attention! Deutsche Bank (WKN:514000) is standing on the precipice. My only hope is that the new CEO Christian Sewing does not go one step further. Although I am much more optimistic about his strategy in some areas than was the case with his predecessor John Cryan.

S&P lowers the thumb

The downgrade from A- to BBB+, together with the share price development in the 9 euro range, currently gives me the most stomach ache. The bank is in a state, both with the rating agencies and on the markets, that should satisfy absolutely no investor. The CEO also already made it clear that the current share price by no means reflects the true value of the company.

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However, I have to say here that this statement does not really reassure me. After all, the stock price is by no means a snapshot in time. With a few exceptions, the share price has been going downhill continuously since 2013, and as a result has lost roughly three quarters of its original price of around 35 euros to date.

Although Sewing is now taking action in important areas such as the investment business, jobs and the branch network, it will probably take quite a while before these measures really have a noticeable effect. At the moment, however, it is unfortunately obvious that Germany's banking leader is rather in chaos.

Merger with Commerzbank?

There seems to be a lot going on behind the scenes at Deutsche Bank. Supervisory Board Chairman Paul Achleitner is said to have been in talks with major investors about a possible merger with Commerzbank (WKN:CBK100) for months, according to recent media reports from Bloomberg.

The main snag, however, is the low share price, which could presumably trigger a capital increase with write-downs. Deutsche Bank is also said to be looking to sell a portfolio of energy loans worth three billion U.S. dollars.

However, a merger of the two institutions would only be possible anyway if Achleitner could convince the major institutional shareholders: These would be in particular BlackRock (WKN:928193), Cerberus, the Emirate of Qatar and the financial investor C-Quadrat, which in turn is in the hands of the Chinese group HNA (WKN:880973). According to recent media reports, major investors are opposed to the plan.

At first glance, a merger of Deutsche Bank and Commerzbank does not seem so uninteresting in my opinion, because the major investors BlackRock and Cerberus are on board with both institutions.

Cerberus is currently very heavily involved in the European banking business. Among others, they are also interested in the Austrian Postbank BAWAG P.S.K (WKN:A2DYJN) and are active in Germany in the more regionally active Sudwestbank. However, according to Reuters, Cerberus chief Stephen Feinberg had already made it clear in talks with the chancellor's office last December that the German economy offered enough room for two large private banks.

Unrealistic mind game

But now the crucial question: What advantages would such a development offer Deutsche Bank shareholders??

Roy Smith, Professor Emeritus of Management Practices at New York's Stern School of Business described the idea in an interview with Bloomberg as follows: Merging Deutsche Bank and Commerzbank would be like tying two drunks together so they can hold each other up.

And to stay directly once in the picture: What shareholder wants to invest his money in two alcoholics?? Whether you are a private or institutional investor, you should all have an interest in seeing a company develop sustainably and positively under its own steam.

Deutsche Bank is currently in a very difficult situation, that is undisputedly so. But a merger with Commerzbank can absolutely not be the solution. This does not create added value for investors, but in the end destroys capital and also exactly what Deutsche Bank originally stood for.

It is a major private bank of world standing, deeply rooted in Germany. With the large-scale withdrawal from investment banking, Deutsche Bank will only play in the second league on Wall Street in the future.

Conclusion

If Sewing's reforms take hold, I think the Deutsche Bank share has a good chance of recovering from its all-time low. But no shareholder should get their hopes up too high for much more than that. The days when Deutsche Bank was a true global player are over, at least in my estimation, for the foreseeable future. And this is more than regrettable not only for the shareholders, but for Germany as a whole.

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Bjorn Konig owns shares in Deutsche Bank. The Motley Fool does not own any of the stocks mentioned.