Week in Review (26 April)

Deutsche Bank ends discussions on potential tie-up with Commerzbank

DB confirmed yesterday that it had ended talks with Commerzbank over a merger on the grounds that the transaction “would not have created sufficient benefits to offset the additional execution risks, restructuring costs and capital requirements associated with such a large-scale integration” – a view shared by the SSM. The SSM, which strongly favour cross border bank consolidation, will now be keen to see whether Unicredit CEO Jean-Pierre Mustier will follow through on a longstanding goal to expand the bank’s German footprint by bidding for Commerzbank.

The next steps for DB, which this morning reported a 19% drop in trading revenues at its corporate and investment bank across Q1, are unclear. DB officials had discussed the possibility of creating a ‘bad bank’ in the event of merger talks with Commerzbank falling through. This initiative would look similar to the noncore unit closed by DB in 2016 and would give the bank the ability to separate unprofitable business lines from the core business by having them report revenues distinct form the DB’s core business. Equities and equity derivatives have been earmarked for downsizing and may be siphoned off into this distinct unit.

Irish privacy regulator begins Facebook probe

The Irish Data Protection Commissioner is arguably the most important Member State regulator in the EU, as Ireland plays host to the European HQs of major tech companies – including Google and Facebook. Its most recent annual report indicated that 15 statutory inquiries had been opened into the compliance of certain technology companies with GDPR. Some 10 of the Irish cases were understood to relate to Facebook.

Ahead of the conclusion of those investigations, it is understood that the regulator has now opened a new investigation into Facebook, over its handling of password data. The new investigation is expected to take months, and it is unclear at this point if a fine is being considered. It is similarly unclear if fines will be imposed by the Irish regulator in any of the ongoing investigation.

Bavaria proposes – and then abandons – regional digital tax

This week it was reported that the Bavarian government had considered the imposition of a digital tax at regional level. The proposal was for companies advertising on digital platforms to be charged 15%, which they could then reclaim from the platform. The proposal, which the Bavarian authorities had regarded as legal under the Federal Tax code, was discontinued following talks with the national tax authority.

While there is a difference between the proposed introduction of a regional level tax and the imposition of levies in individual Member States, it is still possible that a mosaic of national level taxes will function inefficiently with costs that will outweigh the potential benefits.