Co-op banks merge to create Germany’s third biggest bank

Germany’s two central co-operative banks,WGZ Bank and DZ Bank are to merge, forming the country’s third largest bank by assets. The co-operative financial sector in Germany has 18 million members, with...

Germany’s two central co-operative banks,WGZ Bank and DZ Bank are to merge, forming the country’s third largest bank by assets.

The co-operative financial sector in Germany has 18 million members, with co-op banks being the main lenders to small and medium enterprises (SMEs), including co-ops. The two central co-operative banks have acted as central clearing institutions for more than 1,000 co-operative lenders.

The bigger of the two, Frankfurt based DZ Bank (German Central Co-operative Bank), is the central clearing organisation for around 900 co-operative banks across Germany.

WGZ Bank serves 100 co-ops in the state of North Rhine-Westphalia.

The official merger, designed to cut costs and build an economy of scale, will be signed in March/April 2016 with the joint central institution set for launch in August 2016.

The banks say the merger will save them €100m a year through efficient market development and the avoidance of duplicate investments by integrating IT and process platforms.

It is also hoped the merger will bolster capital by more than €500m, with positive impacts on the new bank’s capital, in line with the Basel III Agreement.

The assets of WGZ Bank will be transferred to DZ Bank and the shareholders of WGZ Bank will be granted shares in DZ Bank in exchange.

The estimated value of the assets of the two banks is €501bn, which means that together they will form Germany’s third-largest bank by assets after Deutsche Bank (€1.7tn) and Commerzbank (€564bn).

Deflation across Europe means German co-op banks have to lower interest rates  to compete with other lenders, which limits their ability to develop services for customers and provide dividends to members.

The banks said the merger would help diversify the range of subsidiary products and services available to the local co-operative banks.

The process could also result in moderate job losses.

Wolfgang Kirsch
Wolfgang Kirsch

“Today is a great day for the entire co-operative financial network,” said Wolfgang Kirsch, chief executive of DZ Bank. “This step will be taken in an equitable, balanced manner and on the basis of equal partnership.

“Both institutions offer their owners considerable strategic and commercial benefits.

“Furthermore, in an environment defined by regulations, low interest rates and digitisation, we are opening up new opportunities with respect to earnings and growth for the co-operative banks, the joint central institution and the co-operative sector’s specialised service providers.”

The new joint central institution will be called DZ Bank. Mr Kirsch will be the chief executive, with Hans-Bernd Wolberg – CEO of WGZ Bank – serving as deputy.

Mr Wolberg added: “Our banks are already linked by the clear strategic focus on the co-operative banks, and on a successful co-operation based on a spirit of trust in a wide range of topics.

“Our merger will now take this into consideration, also with regard to structures. We will further strengthen our foothold at the centre of the co-operative banks, continuously developing the joint central institution into a holding structure and by creating a central advisory council at holding level.”

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