German bank merger appears to fizzle outBerlin's bid to create a giant falls flat
FRANKFURT - The short, strained mating dance between Deutsche Bank and Germany's largest retail bank, Postbank, appeared to fizzle on Thursday, but not before it raised a raft of questions about the meddling of the German government in industry.
Deutsche Post, the mail and delivery giant that owns Postbank, said it planned to move ahead with a previously announced stock offering of the bank next month, rejecting the idea of a sale to Deutsche Bank and pledging to hold onto a majority stake.
Publicly, the government said the matter was none of its business. But privately, officials in Berlin had urged Deutsche Bank to buy Postbank, according to people briefed on the discussions. Under pressure, Deutsche Bank's top executives agreed to look at it but decided not to make an offer in the end.
Postbank's statement came as a relief to executives at Deutsche Bank, many of whom are loath to expand in the sclerotic German market.
A deal could be revived, particularly if the market withers between now and June 21, the listing date.
But it was a setback for German government officials, who had hoped that a deal would kick off a long overdue consolidation in the country's banking industry.
Such matchmaking would raise few eyebrows in France, where the government all but chaperoned the recent takeover campaign for the French-German pharmaceutical giant, Aventis.
In Germany, where there is less of a tradition of state-directed industrial policy, the Postbank saga is being regarded as a watershed event that signals Chancellor Gerhard Schröder has decided to emulate the French policy of creating and supporting national industrial champions.
"We're seeing a return to irrational thinking," said Daniel Gros, the director of the Center for European Policy Studies, a research organization in Brussels. "These politicians don't understand why their economies aren't working, and they are trying anything to fix them."
Economic woes are not the only reason for the policy shift. German officials were unnerved by the Aventis deal, because it turned what had once been a hybrid French-German company - the combination of Hoechst and Rhône-Poulenc - into a flagship of the French drug industry.
Not content to allow German banking go the way of pharmaceuticals, Schröder has decided to push for a consolidation that would create at least one world-class financial institution.
In a widely quoted speech to a banking conference here last week, Schröder said, "What we need is one bank, possibly two, that can compete globally from their home base in Germany."
The failure to bring off this deal, however, illustrates the limits that Germans face in pursuing what the French call dirigisme. After Schröder gave his speech, the government delivered its back-channel message to Deutsche Bank, and unnamed officials in the Finance Ministry mused about the virtues of a Deutsche Bank-Postbank merger in the German press.
But a German chancellor or finance minister would find it difficult to intervene as directly as the French finance minister, Nicolas Sarkozy, did when he called the chairmen of Aventis and its would-be acquirer, Sanofi-Synthélabo, and ordered them into his office to work out their differences.
"A German leader has only rhetoric and the power of persuasion," said Fred Irwin, president of the American Chamber of Commerce here. "A chancellor can't force things to happen."
The government's leverage in a Postbank deal would be somewhat stronger than that because it is the bank's controlling shareholder, through its ownership of the parent company, Deutsche Post.
The government had a pecuniary motive as well. A sale of Postbank could net more than $5 billion - money that could help plug Germany's ballooning budget deficit.
The finance minister, Hans Eichel, laid bare the size of that hole on Thursday, announcing that the government expected a shortfall in tax revenues of E9.6 billion, or $11.4 billion, in 2004.
Analysts believe Germany's interventionist tendencies will be influenced by the health of the economy. During flush times in 2000, the German government stood by as Vodafone of Britain absorbed one of the country's largest conglomerates, Mannesmann, in an epic takeover battle.
Statistics released here on Thursday were stronger than expected, showing a 0.4 percent increase in German economic output in the first quarter. Italy also grew by 0.4 percent in the first quarter, surprising economists and suggesting that the recovery in Europe is gaining traction.