A German Banking Merger Remains Far Off

In Greek mythology, Cerberus was the three-headed dog that prevented the dead from leaving the underworld. The arrival of its financial namesake, Cerberus Capital Management, as a major shareholder in the troubled lender Deutsche Bank will be seen by investors as a more positive omen. But any hopes of reviving a merger with its rival Commerzbank, where Cerberus already owns 5 percent, rest with bigger beasts — including the German government.

Investments in public companies are relatively unusual for Cerberus, a hedge fund run by Stephen Feinberg that tends to specialize in distressed debt and private equity. The 3 percent stake in Deutsche Bank that Cerberus disclosed in a regulatory filing on Wednesday is worth close to 980 million euros, or $1.2 billion. That makes it the group’s second-largest direct investment in a listed company, according to Eikon. The Commerzbank stake is No. 3. Add in its remaining shares in the Austrian lender Bawag — which recently went public more than a decade after being rescued by a Cerberus-led consortium — and the group’s portfolio of European bank stocks is worth about $3.8 billion. Even for a firm with more than $30 billion under management, that’s an intimidating bet.

Cerberus says it thinks the German retail and commercial bank offers “attractive long-term opportunities.” That’s unlikely to be a sufficient explanation for its clients, which could buy Deutsche and Commerzbank shares themselves without paying the firm’s fees.

The latest disclosure will fan speculation that Cerberus is pushing to revive merger talks between the banks, Germany’s two largest private-sector lenders; they held abortive talks about a possible tie-up last year. Yet even though the German banking market remains highly fragmented, there are obstacles to a deal — not least Deutsche’s lengthy integration of its domestic Postbank unit.

Besides, other investors have more clout. At Deutsche, Cerberus ranks behind China’s HNA Group, which owns close to 10 percent, and funds controlled by Qatar’s al-Thani family. And any suitor for Commerzbank will have to win over the German government, which still owns more than 15 percent. Rival European lenders, including Italy’s UniCredit and BNP Paribas of France, are also interested. If the two German banks do end up joining forces, Cerberus can do little more than wag its tail in approval.