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Potato Corner eyes more stores in PHL, abroad

By Vincent Mariel P. Galang, Reporter
POTATO CORNER is looking to open more stores in the Philippines and internationally this year.
“For international, we are opening 60 stores for outside the Philippines… all around. We have more than a hundred stores in Indonesia, already. We have 40 stores in the US… 30 plus stores in Thailand, already, so we’re growing internationally,” Jose P. Magsaysay, Jr. , president and chief executive officer of Potato Corner told BusinessWorld in an interview March 5.
For the Philippines, Mr. Magsaysay said the company is targeting to open a “maybe, hundred more stores.”

POTATO CORNER is one of the most popular food cart franchises in the country. — WWW.FACEBOOK.COM/POTATO-CORNER

At present, the food cart giant has 1,100 stores across the Philippines, while there are 200 stores outside the country.
Potato Corner’s expansion has been mostly due to franchising. Around 70% of its stores are franchised, while 30% are owned by the company.
Mr. Magsaysay said that the company maintained its franchising fee for Potato Corner, especially now that most of their new franchisees were the customers before.
“Not too far. Alam mo [You know what], that’s one thing we did. We’re always protecting our franchisees in terms of their payback, their return on investment, so we never increased the franchise fee. Kung ano ’yung franchise fee namin [Whatever is our franchise fee] 15 years ago, ’yun pa rin ang [that is still the] franchise fee ng [of] Potato Corner until today,” he said.
“A lot of our new franchisees now were our customers when they were, bata pa sila [still young]… Sila na ngayon ang mga partners namin [They are now are our partners]… Ngayon, may edad na sila, pwede na silang mag-invest [Now that they are in the right age to invest], Potato Corner ’yung choice nila kasi [is their choice because] it’s something they love,” he noted.
Mr. Magsaysay noted that for Potato Corner, the company does not require the interested franchisee to have the capital immediately. As long as the chosen site for the franchise can earn and return the investment, then the company is very much open to franchising it.
Kunwari sinabi, may site dito, pero wala akong kapital, pero pag tinignan ko yung site mo, it’s something that I cannot say no to, mag-partner tayo… bigyan kita ng franchise, tsaka mo na ako bayaran. [For example, someone says I have a site but I don’t have capital. But when I check the site, it’s something that I cannot say no to. We can partner. I can give you the franchise and you can pay me afterwards],” he said.
Potato Corner started in 1992 with the concept formulated by Mr. Magsaysay and his three other partners, namely Jorge Wineke, Danny Bernejo, and Ricky Montelibano. The concept is selling flavored french fries the way popcorn is sold.
With their investment of P35,000 each, the single kiosk in SM Megamall grew to what is known to be the “World’s Best Flavored Fries.” Not only is it only in the Philippines, but also in more than 100 countries including Indonesia, United States, Thailand, and Panama.

Filinvest City and Davao Oriental to hold music festivals in April

FILINVEST CITY will host its community fair, Festival of Possibilities, on April 26 at the Filinvest City Event Grounds.
Set to perform are Brisom, Chiquerella, Lunar Lights, Wicked Adobo, Written by the Stars, I Belong to the Zoo, This Band, Itchyworms, Rivermaya, and Spongecola.
Now on its second year, Festival of Possibilities 2019 will also have arcade games and inflatables and a food bazaar.
Admission to the Festival of Possibilities is free so long as festival goers present proof of residence or employment in Filinvest City at the venue gates.
For more information on the festival, visit www.facebook.com/FilivestCityOFFICIAL.
DAVAO ORIENTAL MUSIC FESTIVAL
The Davao Oriental provincial government and the City of Mati, along with Orca Promotions, are organizing what will be the biggest music festival in the province set for April 6-7.
Dubbed the Bonfire Music Festival, the two-day music festival will be held at the Provincial Sports Complex at Bgy Dahican, Mati in Davao Oriental.
Lined up to perform on April 6 are December Avenue, Nairud, Harmoniax, Broken Chords of May, OrientRocks, Muzza Band and Mark & Sid; April 7 will feature top rave DJs Tom Taus, Stefan Lan, Ron Poe, Jet Boado, Cathy Frey, Cassie D and Jack Ripper.
A two-day pass will grant access to all these performances and discounts for activities such as a paintball challenge, freebies from sponsors, raffle entries, and many more.
For tickets and inquiries, call 087-306-0573
e-mail gcarmelotes.orca@gmail.com or visit the Bonfire Facebook page https://www.facebook.com/bonfiremusicfest/.

DMCI’s Ivory Wood development completed

THE property unit of DMCI Holdings, Inc. said it has completed all seven buildings of the Ivory Wood development within the 150-hectare Acacia Estates township in Taguig City.
In a statement, DMCI Homes said construction of Abaca, the seventh building at Ivory Wood, was finished ahead of its November 2019 target. Turnover of units started this month.
The Ivory Wood development includes Anahaw, which was turned over to homeowners in January 2018. Turnover of Palmira was in April 2018; Lauan in July 2018; Kamia in October 2018; Flores in November 2018; and Adelfa in February 2019.
The seven buildings, which feature a Filipino-Spanish design, have a combined 965 units. Each building has six floors, plus one to two basement parking floors. Units range from two-bedroom or three-bedrooms.
Launched in 2015, Ivory Wood mainly targets young families and professionals by providing them a home near work. It also targets overseas Filipino workers (OFWs) and investors who are looking for space to live in or a space to rent out or sell the unit to profit.
“With the completion of the 3.3-hectare development, residents can now enjoy a chic and classic metropolitan retreat with Ivory Wood’s wide array of resort-inspired amenities that include lush gardens, a grand clubhouse, picnic area, children’s playground, kiddie pool, lap pool, fitness gym, audio-visual room, jogging path and a basketball court,” the company said in a statement.
Acacia Estates Township is located near business districts namely Makati City and Bonifacio Global City.
DMCI Homes is the property unit of diversified engineering and construction conglomerate DMCI Holdings, Inc., which also has interests in general construction, coal and nickel mining, power generation, water concession, and manufacturing. — Vincent Mariel P. Galang

PNB books higher net income in 2018

PHILIPPINE National Bank (PNB) posted a higher net income in 2018 driven by its core businesses.
In a regulatory filing on Monday, the Lucio C. Tan-owned lender said it booked a net profit of P9.6 billion last year, up 17% from the P8.2 billion tallied in 2017.
The lender attributed the growth in its bottom line to “sustained efforts in strengthening the bank’s core business.”
Net interest income stood at P27 billion, up 23% year-on-year, driven by a 19% expansion in gross loans and the widening of its net interest margin to 3.3%.
Despite seeing “robust” loan growth, asset quality remained strong with a gross non-performing loan (NPL) ratio of 1.76% with NPL coverage of 156.87%.
“Funding efficiencies were achieved behind a 22% increase in low-cost demand deposits which fuelled growth in deposit liabilities,” the statement from the bank read.
Net service fees and commissions grew 9% in 2018 driven by improvements in deposit, trade, credit card-related fees as well as bancassurance income, partially offsetting a decline in underwriting fees.
Meanwhile, net gains from sold assets grew to P5.9 billion from last year’s P3.9 billion.
Total operating income of the bank stood at P38.9 billion, up 20% from the P32.3 billion in the previous year.
On the other hand, operating expenses excluding provisions for impairment and credit losses grew 13% year-on-year due to higher business taxes and other business-related expenses.
Overall, PNB’s assets grew 18% to P983.6 billion last year from P836.3 billion in 2017 driven by current and savings account deposits as it continued to focus on generating low-cost funds and other stable sources of funding.
Capital adequacy ratio was at 14.35% while common equity Tier 1 ratio was at 13.55% at end-2018.
In April 2018, the bank issued $300 million of five-year fixed rate senior notes out of its $1-billion medium term note program in Singapore and Hong Kong.
The bank recently raised P8.22 billion worth of 5.5-year long-term negotiable certificates of deposit, which will be used to help extend its maturity profile.
PNB shares stood at P60.25 apiece, up 0.65 centavos or 1.09%. — KANV

CLC optimistic on growth, expansion for 2019

CHELSEA Logistics Holdings Corp. (CLC) is optimistic on its growth prospects and expansion plans this year, with focus on its logistics infrastructure and telecommunications businesses.
In a statement on Friday, Davao-based businessman Dennis A. Uy’s company said its shareholders had approved to change its corporate name to “Chelsea Logistics and Infrastructure Holdings Corp.” and its Philippine Stock Exchange (PSE) trading symbol to “C” from “CLC” during its stockholders’ meeting last Friday.
“Our expansion plans complement our current business operations… This year, we continue with our business expansion plans and expect that our shipping and logistics commitments and infrastructure undertakings will enable us to be more competitive and bolster our market position,” CLC President and Chief Executive Officer Chryss Alfonsus V. Damuy said in the statement.
Last year, CLC ventured into the telecommunications business when it joined the Mislatel consortium, formed by its parent company Udenna Corp.; China Telecommunications Corp. and Mindanao Islamic Telephone Company, Inc. (Mislatel).
CLC also has projects in the pipeline for its logistics infrastructure business, such as its unsolicited proposal to modernize the Sasa port in Davao City. Mr. Damuy said should it gain approval for the project, it is expected to “translate to value creation for our stakeholders and promote further synergy within the Group.”
Outside seaports, CLC also received in October original proponent status for its proposal to operate and expand the Davao International Airport. The project is currently being reviewed by the National Economic and Development Authority (NEDA).
“As the government pushes its ‘Build, Build, Build’ program forward, we are actively looking for opportunities to participate in the development of infrastructure facilities and systems in the country, including ports and airport development and operations and other related facilities,” Mr. Damuy was quoted as saying.
The company said it is bullish that 2019 will show “substantial improvement” in its performance, backed by projects that are geared to expand its business operations. — Denise A. Valdez

Amaia Land launches Imus town house project

AMAIA LAND Corp. said it recently launched its first town house project in Imus, Cavite.
In a statement, the company said Amaia Series Vermosa is a 6.9-hectare development along Patindig Araw road in the vicinity of Ayala Land, Inc.’s 700-hectare master planned development Vermosa Estate.
“Located near Ayala Land’s fourth largest estate project, Amaia Series Vermosa brings Amaia’s trademark of superior quality, affordable homes to Caviteños,” Kristel T. Manalo, project development head for South Luzon of Amaia Land said in the statement.
There are two town house types available, both with three bedrooms, toilet and bath on the second floor and available provisions of toilet and bath on the ground floor, a kitchen, and a dining and living area. All units will have car ports.
Amaia Series Vermosa can be accessed from Makati City, Manila, Muntinlupa City, and Tagaytay City through roads such as Daang Hari, South Luzon Expressway (SLEx) through Muntinlupa-Cavite Expressway, Cavite Expressway (CAVITEx), and the soon-to-be-completed Cavite-Laguna Expressway (CALAx). — Vincent Mariel P. Galang

Lazada’s Super Party concert to be livestreamed

E-COMMERCE site Lazada will livestream its inaugural Super Party music concert on its app simultaneously across all six of its markets in the region, as a way to mark its 7th anniversary.
Headlining the concert will be Grammy and Brit Awards winner Dua Lipa, known for songs like “New Rules,” “IDGAF,” and “One Kiss.” Also performing are Filipino stars Nadine Lustre and Sam Concepcion; Miss Universe 2015 Pia Wurtzbach; Indonesian singer-actress Agnez Mo; winner of The Remix Contest 2015 and coach on The Voice Vietnam 2017, Dong Nhi; Indonesian-Australian model and actress Nadya Hutagalung; Vietnamese comedian and TV presenter Tran Thanh; host Allan Wu; and rappers Urboy TJ, Hael Husaini, Saykoji, Ismail Izzani, THELIONCITYBOY, Angger Dimas, and Dipha Barus.
The concert itself will take place in Jakarta, Indonesia, on March 26, 8 p.m. (Philippine time) at the Indonesia Convention Exhibition. Lazada consumers in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam can catch all the action streamed live on their Lazada app.
“Through this first-of-its-kind concert experience across Southeast Asia, Lazada is blending shopping and entertainment, ushering in a new era of ‘shoppertainment,’” the company said in a press release.
“We want to go beyond shopping and offer our consumers and fans, through our in-app live streaming capabilities, moments to cherish and remember. What better way to celebrate our 7th birthday than with our fans, Dua Lipa, and the region’s most talented artistes who will be partying together at the concert and through our app,” said Mary Zhou, Chief Marketing Officer at Lazada Group, was quoted as saying.
Lazada’s 7th birthday celebration culminates with a one-day sale on March 27. The one-day sale promises a new online shopping experience that includes a new selection of arcade games for redeeming vouchers and deals for consumers in the region.

Traders push yields close to RBA cash rate ahead of employment data

INVESTORS CAN’T SEEM to get enough of Australian bonds amid worries about an economic slowdown. This week’s employment data may just whet their appetite for more.
Australia’s 3-year bond yields have dropped almost 50 basis points since early December to within a whisker of the central bank’s 1.5% policy rate. Short-dated bonds have proved popular as markets dialed up expectations the Reserve Bank of Australia (RBA) will have to reduce interest rates.
While consumer sentiment and growth have worsened amid a property slump, the unemployment rate has been one consistent bright spot for the economy. Hovering at just 5%, close to the lowest levels since 2012, the release on March 21 may set the tone for the RBA’s next policy meeting in April.
The key for rate-cut expectations will be the labor market, according to Skye Masters, head of interest-rate strategy at National Australia Bank Ltd. “Our bias is the cut will come earlier rather than later” as the central bank’s positive outlook for the labor market is unlikely to be fulfilled, she added.
Money markets are now pricing in a 25 basis point rate cut in August, with another in the second quarter of 2020. The aggregate open interest — a measure of total outstanding positions — for Australia’s 3-year bond futures have surged to a record high of 2.3 million contracts.
Susan Buckley, managing director of global liquid strategies in Brisbane at QIC Ltd., which oversees the equivalent of $60 billion, is one fan of 3-year debt.
“We don’t need to fear higher rates now, so it’s a good strategy to park your duration in the front end,” said Buckley. “We’re back into this low interest rate world.”
While “a fair bit is starting to get priced in” to short-dated debt, QIC remains comfortable building a long position in 3-year paper to hedge risks its taking elsewhere, including corporate bonds, she said.
However, there are things which could limit the continuing drop in yields. One may be election-driven spending as the Liberal coalition government seeks to reverse sinking ratings with its April 2 budget.
Another factor would be rising costs to borrow bonds and tighter bank balance sheets, said Tamar Hamlyn, Sydney-based principal at Ardea Investment Management. That “makes buying and holding physical bonds more expensive for unfunded investors.” — Bloomberg

Ortigas tops off The Imperium

ORTIGAS & Co. said it recently topped off its second residential tower in Capitol Commons estate in Pasig City.
In a statement, the property developer said it has completed the 62-floor The Imperium. Each floor will only have four units, ranging from two-bedroom units to suites. Prices range from about P16 million to P37 million. Turnover of The Imperium units is set for 2020.
“We are excited in bringing to market The Imperium, our most exclusive residential tower. This is another proud achievement for Ortigas & Company, especially as we fulfill our mission to build great places for life that allow for elevated, excellent living grounded on best-in-class structure, amenities, and design,” Jaime E. Ysmael, chief executive officer and president of Ortigas & Co., was quoted saying in a statement.
The tower’s structure has 57% glass-to-concrete ratio which enables efficient use of energy. It also has trapezoidal, double-glazed windows that lessen the need for artificial lighting, and reduce noise and control heat. It also has buckling-restrained brace technology which enables it to withstand strong typhoons or earthquakes. — Vincent Mariel P. Galang

Aboitiz group teams up with Australian firm

ABOITIZ Equity Ventures, Inc. (AEV) has partnered with Australia’s Arowana International (AWN) for the establishment of a training center that will offer information and communications technology (ICT) seminars within the year.
In a letter addressed to the Australian Securities Exchange Monday, AWN said its wholly owned subsidiary DDLS Australia Pty Ltd. has entered into an agreement with a unit of AEV for the conduct of ICT seminars.
The first training center will be launched in Manila by the middle of the year, with more to be unveiled in other areas depending on demand. The centers will offer technology-focused short courses.
The courses will be administered by AWN’s wholly owned unit EdventureCo, a professional and vocational education and trading group in the Asia-Pacific region.
“The ICT needs across the Philippines are immense and will continue to grow strongly given this demographic backdrop. The opportunity and vision of building a Philippines leader in ICT knowledge is shared with the Aboitiz group,” AWN Executive Chairman and Chief Executive Officer Kevin Chin said in a statement.
For his part, AEV Chief Operating Officer Miguel Aboitiz said education has always been the advocacy of the Aboitiz group.
“This initiative provides technology-focused short courses that will produce better-trained and more competent Filipinos in the growing digital economy,” he was quoted as saying.
DDLS is said to be the only ICT training provider in Australia to offer training in leading cloud providers, Amazon Web Services, Google Cloud and Microsoft Azure. — Arra B. Francia

The developer listened

The Caligula Effect: Overdose
Playstation 4/Nintendo Switch
THE Caligula Effect received mixed reviews as it made its way to the Sony PlayStation Vita in June 2016 (and localized on the same platform about a year later), with not a few quarters expressing disappointment on its inability to live up to promise. In part, it suffered from an unfair comparison to iterations from the Persona series; the involvement of publisher Atlus and writer Tadashi Satomi in the intellectual properties gave rise to heightened expectations the new release wasn’t likely to meet. In larger measure, it was bogged down by the depth of its ambition; it put forth novel ideas that could not be executed fully in light of the inadequacies of its host hardware.
Creditably, developer Aquria took the reactions to heart and resolved to work off the feedback to come up with a bigger and better product, and on bigger and better consoles. The result is Caligula Effect: Overdose, just released out West on the PS4 and Nintendo Switch. As the title suggests, it’s an improved version of the original, presenting gamers with crucial choices from the get-go, additional characters, narrative tweaks that allow for alternate endings, and graphical enhancements otherwise unavailable on the constrained Vita.
Story-wise, The Caligula Effect: Overdose prudently retains the already-compelling approach of its source material, albeit with a vital twist. At the outset, gamers are afforded the freedom to provide the name and gender of their character, and the tweak, while seemingly subtle, ensures expeditious engagement and enhanced empathy. And as they go through the narrative which has them realize that Mobius is a Matrix-like made-up world created by the sentient vocaloid Mu, their heightened identification with their dramatis persona informs their decisions. Do they help other equally wisened protagonists in the Go-Home Club expose the dichotomy? Or do they act as a de facto double agent and perpetuate the status quo, leaving affected individuals stuck as high school students in an artificial representation of life?
The Caligula Effect: Overdose unveils the blue pill-red pill dilemma in compelling fashion. The Go-Home Club is composed of enlightened students determined to expose the truth and free the minds of unwitting victims (or, as the case may be, beneficiaries) of Mu’s creation. At the other end of the spectrum are Osinato Musicians, who compose songs for the latter to perform in order to keep Mobius’ inhabitants in a trance. Along the way, gamers are aided by Aria, a virtual doll, in their mission and in harnessing Catharsis Effects, which develop from tense situations and, in her absence, which could have turned their character into a Digihead. Instead, the emotional reactions become weapons that manifest in radical alterations to their character’s body.
Parenthetically, The Caligula Effect: Overdose boasts of a unique system triggered when members of the Go-Home Club do battle with the Osinato Musicians and brainwashed Digiheads en route to Mu. For every turn-based cycle, gamers can line up three courses of offensive or defensive action and then preview the timing of these courses via an Imaginary Chain. Period- and position-specific adjustments can be made to unleash effective combos, although the presence of mini bosses can stunt progression as initially envisioned. The flipside, to be sure, is that preparations take a while even for seemingly perfunctory combat. The math is clear: the Club’s party of four requires 12 choices per turn, even during random encounters.
As with other turn-based role-playing games, The Caligula Effect: Overdose compels gamers to go through no small measure of grinding to earn Stigma and skill points and get ahead. Thankfully, there’s an auto-battle option that can be turned to at any given instance, not to mention a more indicative map that allows for better location and level navigation. There is likewise the Causality Link, which, in a nod to the Persona franchise, enables the main character to develop social relationships with party members and over 500 non-playable characters. These, in turn, open up side quests aimed at solving personal problems and requiring quirky solutions.
In this regard, The Caligula Effect: Overdose shines in comparison to others in its genre. Even Osinato Musicians have Character Episodes that gamers can delve into, thereby enriching their appreciation of the overarching narrative. Heavy themes are tackled, in the process showing the marked differences between the lives of the protagonists and antagonists in Mobius and in the real world. They may be high school students in Mu’s structured handiwork, but, in truth, they actually live more complex, and complicated, lives. Where are they happier? And where are they truly better off?
In any case, The Caligula Effect: Overdose’s technical superiority vis-a-vis its predecessor is a plus. Gone are the frame drops that marred the presentation of The Caligula Effect on the Vita, as well as the soft tones and washed-out colors that then prevailed over the graphics. In their place are sharp outlines and distinct blends, and striking animation effects benefiting from its use of the Unreal engine. Notably, the soundtrack retains its appeal; original Japanese voices are backed up by music that draws the appropriate emotions for the moment. On the more powerful PS4 and Switch, though, their impact is pronounced.
In the final analysis, The Caligula Effect: Overdose makes good on its promise. It’s what the original was envisioned to be. In fact, it’s better, if nothing else proving that developers can, indeed, take criticism constructively and come up with improvements that lift up the overall experience. It’s still far from perfect; among other things, Casualty Links involve too many characters for gamers to keep up with, and the presentation of their backstories can come off as heavy-handed, particularly when stereotypes are promoted. Still, it’s a notch above the dregs that permeate the RPG landscape, offering notable features not found in supposed peers. Two thumbs up, and, whether at home on the PS4 or on the go with the Switch, well worth its $49.99 list price.
THE GOOD:
• Compelling narrative
• Unique gameplay characteristics
• Technically superior to predecessor
• Use of Unreal engine allowing for graphical improvements on more powerful platforms
THE BAD:
• Grinding required, and not always providing the desired rewards
• Can come off as heavy-handed
• Relationship-building component can prove too taxing for comfort
RATING: 8/10

Deutsche Bank in talks with Commerzbank as turnaround fails

DEUTSCHE BANK AG, Europe’s once-dominant financial institution, threw in the towel on years of failed turnaround efforts and agreed to begin government-backed merger talks with Commerzbank AG.
By bowing to officials’ desire to forge a durable German lender with global reach out of two troubled firms, Deutsche Bank’s leaders are hardly putting their woes behind them: massive job cuts, political turbulence, a weakening European economy, US probes into its dealings with Donald Trump and a herculean integration — not to mention skeptical clients and investors — lie ahead if they reach a deal.
“I have consistently stressed that consolidation in the German and European banking sector is an important topic for us,” Deutsche Bank Chief Executive Officer Christian Sewing said in a letter to employees. “We have to assess how we want to play a part in shaping it.”
The companies confirmed the move to deeper discussions in statements on Sunday, capping months of speculation and behind-the-scenes talks with the Finance Ministry.
Both firms have struggled to restore revenue growth after deep cuts to their investment banking units. An economic slowdown that has pushed back expectations for higher interest rates has added urgency to the situation.
The Finance Ministry said in an emailed statement it “notes” the decision of the banks to start open-ended talks and that it’s in “regular contact” with all parties involved. Finance Minister Olaf Scholz and his deputy Joerg Kukies have been favoring a deal to ensure the country has a lender to support the export-driven economy, people familiar with the matter have said. The country still owns a large stake in Commerzbank after a bailout.
The trade union for bank employees opposes a merger “in view of the risk to tens of thousands of jobs,” Jan Duscheck, who sits on Deutsche Bank’s supervisory board as labor representative, said in an emailed statement. As many as 30,000 positions could be at risk in a merger, according to people familiar with the matter.
Shares of both lenders rose Monday, with Deutsche Bank gaining 2.9% at 9:04 a.m. in Frankfurt trading and Commerzbank adding 4.3%.
The banks agreed to start formal talks after the government signaled it wouldn’t stand in the way of necessary job and cost cuts, people familiar with the matter said. Deutsche Bank expects to spend the next month in negotiations, according to a person briefed on the talks.
A tie-up of the two 149-year-old firms would create Europe’s fourth-largest lender with assets of about €1.81 trillion ($2.05 trillion). The banks have a combined market value of about €25 billion, comparatively small because of the long slide in the shares. Both companies have lost more than 90% of their value from their peaks.
While it’s not clear how a merger would be structured, Deutsche Bank is the larger of the two and would probably be the acquirer. If a deal goes ahead, it may need to raise about €8 billion from shareholders or through sales of holdings such as its DWS Group asset management business, according to an estimate by Christian Koch, a DZ Bank analyst.
Allianz SE has shown interest in DWS and is exploring the possibility of combining it with its own asset management arm, according to people familiar with the matter. DWS, which was taken public a year ago, rose 6.9%.
“We will only pursue options that make economic sense, building on the progress we made in 2018,” Sewing said in his letter. “Our stated aim remains to be a global bank with a strong capital markets business — based on a leading position in our home market in Germany and in Europe, and with a global network.”
The two companies previously discussed a merger in the summer of 2016. Both Commerzbank CEO Martin Zielke and Sewing were part of those discussions, though Sewing was head of the retail division at the time. The talks fell apart and the lenders embarked on their respective restructurings.
BOLDER STEPS
Almost three years later, their turnaround plans are sputtering. Commerzbank has dropped most of its 2020 financial targets after cutting its revenue outlook. Within Deutsche Bank, doubts are growing that it will be able to reach its goals. Sewing, tapped a year ago as CEO with a mandate to accelerate restructuring efforts, has recently given up his resistance to pursuing bolder steps, people familiar with the matter have said.
Deutsche Bank in February reaffirmed its 2019 profitability target but also made clear that it would need to implement tougher measures if markets don’t play along and revenue continues to decline. January was a terrible month for the trading business though February has seen improving conditions, the people have said.
For Deutsche Bank, the urgency to address the situation is exacerbated by high funding costs and the risk of a credit rating cut. Chairman Paul Achleitner is said to see an expansion of Deutsche Bank’s retail deposit base — which Commerzbank would bring — as one way to lower funding costs.
The recent decision by the European Central Bank to push out the expected first interest rate increase has exacerbated the situation as both banks have said that they will struggle to meet their long-term profitability target in the current low interest rate environment.
2016 TALKS
The idea back during the banks’ talks in 2016 was to merge Commerzbank with a subsidiary of Deutsche Bank that would also contain its retail and some of its corporate banking operations, and then float that business on a stock exchange, a person involved in the talk has said. Deutsche Bank’s trading operations would have remained separate, perhaps with a view to selling or merging them with another bank at some point.
Proponents of a deal have said it will help the firms cut cost by eliminating branches and thousands of jobs, while pooling investment in information technology. Critics have said a merger would lock both companies into several more years of restructuring, with high execution risks, and doesn’t fix the real problems at Deutsche Bank’s securities unit. Several influential Deutsche Bank investors have said they’re wary of a merger as it will dilute their stakes at a low valuation.
If a deal goes ahead, the new bank will be “busy with itself for years to come,” said Stefan Mueller at DGWA, an investment advisory boutique based in Frankfurt. “We continue to prefer a big European solution to counter the dominance” of US banks. — Bloomberg