Deutsche Postbank: long-awaited market consolidation hanging in the balance

8th July 2008
By Jonathan MacDonald

The possible sale of Postbank and Citibank Deutschland has sparked significant interest.

Recent announcements in the press have pointed towards two potential deals, involving Postbank, Allianz/Dresdner, Commerzbank and Citibank Deutschland. As discussions reach more advanced stages, the moves look increasingly like they could be the trigger for the market consolidation that analysts have been predicting for some time.

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Allianz and Commerzbank recently submitted a E10 billion joint bid for Deutsche Postbank. Both firms had already planned to make individual bids for the German retail banking giant, but have now joined forces, supposedly in an effort to ensure the success of the deal. The possible sale of Postbank accompanies announcements that Spanish banking giant Santander, among other players, is considering a bid for Citigroup's German consumer unit, Citibank Deutschland. Citibank is well known for its efforts in Germany, at one point claiming that it had "unlocked the secret of making money in German retail banking". As such, its business appears to be quite attractive, and there is a significant amount of speculation in the press as to which players are interested.

This has justifiably sparked comment in Germany, where it could finally signal a move toward consolidation in the banking sector. The German banking industry has historically been highly fragmented, with several hundred public-sector savings banks and co-operative banks operating in different regions within the country. The merger would create a large national German bank, the size of which would outclass the current competition. This would likely spur a further round of consolidation and change the German banking market completely.

It is clear that it is now crunch time for the larger German banking institutions. While they all remain cautious and speculate on each possible merger option, a missed opportunity may create some tough and sizeable competition. That said, some analysts predict a failure in the Postbank sale, as potential buyers recovering from the financial crisis struggle to offer an attractive price. There are many other factors that these institutions will have to consider. Many of Germany's employee unions are desperate to ensure that thousands of jobs are not lost through consolidation, and are currently holding preemptive discussions with German banking heads. Without resolving the employment issue, merger synergies may not look quite so attractive.

In any event, these banks will all have to get their consumer banking models right if they are to succeed at winning new business from the hundreds of Sparkasse and co-operative banks that currently dominate the retail banking market.
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