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German banks generate a dizzying 260 billion euros in merger talks

Banks and insurance

German banks generate a dizzying 260 billion euros in merger talks

Germany's public banking system continues negotiations for a merger that could result in a financial giant with assets of 260 billion euros and 11,000 employees, reports the Financial Times.

The decision to launch a formal hearing between the Frankfurt-based Helaba Bank and Deja's property manager was recently made by executives who control them.

Landesbanken are regional, wholesale institutions serving local savings banks or Sparkassen, and are owned by Sparkassen and regional governments.

A bank resulting from such a merger could encourage further consolidation developments within Germany's fragmented public banking sector, which is fully aware of the impact of low interest rates, high costs and costly bailout programs for regional state-owned banks.

In the long run, Sparkassen wants to have an effective institution that can support local banks with much stronger savings, ”a source familiar with the Financial Times plans said.

At a later stage, the entity created by the Helaba-Dek merger could represent a vehicle for future mergers, including other Landesbanken such as LBBW in Stuttgart and BayernLB in Munich, the source said.

An earlier attempt at consolidation failed when Helaba withdrew from merger talks with troubled Landesbanken NordLB. NordLB subsequently saved 3.5 billion euros in aid from the state of Lower Saxony and regional savings banks.

However, the closure of WestLB and the sale of HSH Nordbank to a consortium of private equity groups led by Cerberus have changed the face of the Landesbanken sector. The renewed need for expensive taxpayer-backed support has diminished confidence in Landesbanken's business model and management.

Jan Pieter Krahnen, professor of finance at the University of Frankfurt, points out that the German public banking system suffers from "bony structures", unnecessary duplication of functions and high costs.

"The sector needs radical reforms, and the merger of Helaba and Dek could be the starting point," Krahnen adds.

Being able to keep interest rates low for an extended period of time could help. "The entire German banking sector is suffering from low earnings, and consolidation must be part of the answer," says JOrg Rocholl, president of ESMT Business School.

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