Merger talks between DG Bank and Rabobank fail

Once heralded as the most significant cross-border partnership in European banking, the merger talks between Germany's eighth largest bank, DG Bank, and Dutch co-operative major, Rabobank, fell through. The failure of the two banks to complete their merger, put paid to the hopes of creating a pan-European co-operative financial network. The talks were abandoned because both banks felt that the complex integration process between the two banks was taking too long and it would be harmful to customers.

The two banks have however, committed that their strategic alliance in Europe will continue unhindered, and the collapse of the merger talks will not have any impact on the same. DG Bank is committed to taking up a 50-per-cent stake in Rabo Securities, the brokerage arm of the Rabobank group. According to officials of both groups, the process of going through with the merger talks, has brought both groups closer.

Industry analysts, however, attributed the break in the talks to the opposition by two of Germany's regional co-operative banks, Frankfurt-based GZ Bank and Dusseldorf-based WGZ Bank, which together control a substantial stake in DG Bank. These banks were concerned that if the merger went through, the co-operative banking sector in Germany would lose control over the lucrative investment banking business.

DG Bank has set its sights on becoming a dominant player for the small to medium-sized companies.

The increasing tension in the European markets is putting undue pressure on the banks there who are currently in a consolidation mode. However, previous attempts by major banks to bring about a consolidation through mergers have failed. Notable among these failures are the Deutsche Bank-Dresdner merger plan, which fell through in April and Dresdner's subsequent attempt to link up with Commerzbank, which failed in July.