By Geoffrey Smith
Investing.com – All aboard the good ship Moral Hazard!
Common sense may indicate that the combination of two weak banks does not yield a strong one (someone remembers Bankia?), But  Deutsche Bank (DE 🙂 and Commerzbank (DE 🙂 are on Both have risen sharply this morning after confirming the worst-kept secret in European banking this weekend.
Deutsche Bank rose 3.2% at 04:00 ET (0900 GMT), while Commerzbank rose 3.4% at a new high in 201
Do not think of the banks' obvious lack of enthusiasm for a deal that would make the Eurozone's third largest institution of assets: German embassy chief Christian Sewing's message to his staff could not do that. I've backed his bets even harder if he had tried, while the Commerzbank has confined itself to a single sentence that lacks words like "opportunity" or "value added".
And it does not matter how hard it will be to lay off enough German bankers to achieve the hoped-for cost-effectiveness (union boards estimate at least 20,000) or the additional level of IT complexity for a bank (German) Your last IT boss was described as "dysfunctional" Have you ever bothered.
And whatever you do, do not worry that the most influential shareholder of the merged bank could be the government that has structured its own banking market for years in favor of state and cooperative banks, other priorities than profit.
Two things are important to the markets today: First, the two have finally admitted that none of the banks can save themselves, a conclusion that most analysts had found some time ago. Second, a merger of the German Commerzbank creates a bank for practical reasons, which must never fail. In the short term, this should reduce financing costs and in particular support the German investment banking business.
Both shares are currently traded at around one quarter of their book value, so investors believe the short-term downside risk is limited. Where it leads in the long run is a story for another day.
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