Deutsche Bank and rivals Commerzbank have started exploratory merger talks after the German government signalled it would not stand in the way of a potential tie-up.
The senior management of Germany’s two largest lenders have begun discussions this morning, a step up from initial informal talks in recent weeks.
It comes after Berlin indicated it would not object to necessary cost cuts or job losses.
The merged bank would have around €1.8 trillion (£1.53 trillion) in assets and a market value of €25bn – holding one fifth of Germany's retail banking markets and employing 140,000 people around the world.
Deutsche Bank confirmed the discussions this afternoon and said the board had decided to “review strategic options.”
It said: “The management board of Deutsche Bank is focused on improving the growth profile and profitability of the bank.
“There is no certainty that any transaction will occur,” it added.
In a memo to employees, chief executive Christian Sewing said the bank had “done its homework” over the last couple of months, and it was now time to look at the merger.
He said: “We have consistently stressed that consolidation in the German and European banking sector is an important topic for us.
“We have to assess how we want to play a part in shaping it.”
Commerzbank also confirmed the talks and said the outcome was “open.”
The two banks previously explored a merger in the summer of 2016 but shelved the plan in order to both focus on restructuring.
The German government, concerned over the performance of Deutsche Bank in recent months, is understood to have pushed for an answer on whether a merger could be possible.
Sewing, who had previously played down merger speculation insisting the focus was on growth, today said the bank would review the options carefully in the interests of the bank and all its stakeholders.
“At this point in time, there is no certainty at all that any transaction will materialise. “Experience has shown that there may be a lot of potential economic and technical factors that could hinder or prevent such a step,” he added.