Deutsche Bank and Commerzbank, Germany’s two largest lenders, said Sunday that they had begun merger discussions in what analysts see as a last-ditch effort to create a national champion that can compete with the giant American investment banks.

In a statement, Deutsche Bank said that its board would explore “strategic options” meant to shore up its growth and profitability, and Commerzbank confirmed the merger talks. Both lenders cautioned that the talks may not lead to a deal.

The idea of merging the two firms has gained support in recent months within each bank, and with the German government, after previous rounds of talks over the years failed.

The combined bank would have $2 trillion in assets and be the third-largest lender in Europe, behind HSBC Holdings in Britain and BNP Paribas of France. Together, Deutsche Bank and Commerzbank would have about one-fifth of the private customers in Germany, in theory giving them enough critical mass to be profitable in the country’s overcrowded retail banking market.

For Berlin, combining the two would create a new national champion lender that could support the country’s huge export industry and compete for international business with the giant Wall Street banks. For the lenders, it offers the opportunity to gain financial scale, cut costs and combine technology.

But analysts have questioned whether fusing two beleaguered banks would simply create an even bigger problem. Commerzbank and Deutsche Bank are among the least profitable banks of their size, primarily because they are too large and unwieldy in relation to the revenue they generate.

Deutsche Bank reported a net loss of about $464 million for the fourth quarter of 2018. Commerzbank did better, reporting a profit of $127.9 million.

Rumors have been circulating for months that German political leaders were trying to orchestrate a merger to create a homegrown alternative to overseas giants. If there is another financial crisis, officials in Berlin do not want German businesses to be dependent on foreign banks for credit and access to capital markets.

New York Times