Deutsche Bank and Commerzbank shares rally on merger talk

Several media reports over the weekend suggested Deutsche Bank CEO Christian Sewing had dropped his opposition to the deal. Sewing was reportedly forced to reconsider his stance following investor pressure over the bank’s declining performance.

The German government, which still owns 15 percent of Commerzbank, is understood to be backing a tie-up between the country’s two largest lenders. Reuters reported that Berlin is pushing for a deal, even though it could cause a multi-billion euro financial hole, because it would force the re-valuation of the lenders’ assets.

Deutsche shares were up by over 2 percent in early deals Monday, while Commerzbank was up nearly 4 percent. Over a 12-month period, shares of both companies are down by around 40 percent.

A banking industry source with knowledge of the matter, who preferred to remain anonymous, told CNBC there’s not massive support for the merger within Deutsche Bank. “The general feeling is that the merger is not a great idea since Commerzbank doesn’t have the same amount of credibility on the street as Deutsche Bank when it comes to clients and this can impact future trades.”

Another concern is the German government’s stake in Commerzbank. “There is skepticism that a merger could mean a bigger say from the government in (the) bank’s dealings,” the source added.

A spokeswoman from Commerzbank declined to comment. Deutsche Bank did not immediately respond to a CNBC request for comment. However, both the companies declined to comment on the merger of a prospect to Reuters.

Reports of the possible merger have garnered reaction from across the industry, with some cautioning against the move.

“I am not too optimistic on the merger synergies. There is some room but I don’t think it will have any major impact on stock prices of either banks because it’s still to be proven that there are synergies. The situation is still very fluid,” Michael Huenseler, head of credit portfolio management at Assenagon Asset Management, told CNBC’s “Squawk Box Europe” on Monday.

“First of all, there is no sound economic reason from my perspective. There is no immediate need as there is no concern of the liquidity position … And therefore it all boils down to whether you could create a strong bank out of the two,” he said.

Huenseler added that if a merger becomes more concrete it could give a boost to both company’s shares, but said there would be no great benefit in the long or medium term.