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Time for a reality check

HVB and Commerzbank face an awful choice: lend more to German companies and rack up those NPLs, or stop lending, induce more bankruptcies and drive away customers.


FOR COMMERZBANK AND HypoVereinsbank, it looked as if Christmas had come early. It had been an annus horribilis of constant bad news, rumours of liquidity crises and rating downgrades, when the share prices of both banks fell by over 70%. Then suddenly at the beginning of December investors couldn't get enough of them. Frenzied buying sent Commerzbank up by 100% and HVB by almost 60% from their October lows.

So what caused all the excitement? Actually not much: a relatively banal remark by Heiner Hasford, a Munich Re board member, to the effect that the insurer would not object if Commerz and HVB decided to merge. This comment seems to have taken the market by storm, sparking rumours that Munich Re was playing matchmaker between the two banks and that an announcement was surely imminent.

But a bit of share price uplift shouldn't lull investors into believing things are improving in Germany. Of course Munich Re is trying to rekindle the romance between Commerzbank and HVB: it would be crazy not to. Being a major shareholder in these two banks - it holds 10% of Commerz and 26% of HVB - is proving to be a huge headache for the insurer.


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