Intesa Sanpaolo may acquire Deutsche Bank and potentially create the largest bank in Germany, surpassing Deutsche Bank (DB.US).

There were speculations in the market that Deutsche Bank may acquire Deutsche Bank, but Paul J. Davies, a columnist for Bloomberg, believes that it would be meaningless for Deutsche Bank to acquire Deutsche Bank, and the union is also likely to express dissatisfaction, but buying shares might be a good idea. Participating in the bidding will help Deutsche Bank protect its interests, or at least profit by increasing the acquisition price.

After winning the auction for the German government's stake last week, Intesa Sanpaolo holds 9% of Deutsche Bank's shares. Andrea Orcel, the CEO of this Italian bank, is expected to apply to European regulatory authorities to acquire up to 30% of this bank that serves German small and medium-sized enterprises and eventually merge it with HVB, Intesa Sanpaolo's German subsidiary.

Philip Richards of Bloomberg Intelligence said that this deal will bring a stronger competitor to Deutsche Bank in the domestic German market and may lead to Intesa Sanpaolo's revenue in Germany surpassing Deutsche Bank. Deutsche Bank cannot ignore this potential change in the situation.

If Deutsche Bank reaches a acquisition agreement, it may need to raise funds through a rights issue to support its balance sheet - considering its low valuation, this deal will be costly. Intesa Sanpaolo has a much higher valuation, exceeding 90% of book value, which is crucial for the value that both banks can obtain from the acquisition. Analysts at Citigroup believe that this deal will increase the earnings per share of the enlarged Intesa Sanpaolo by 4%, but the enlarged Deutsche Bank will see a corresponding decrease in earnings per share.

Deutsche Bank's stock valuation is still lower than its peers.

Another big issue is that Deutsche Bank and Commerzbank have many branches in the same places. On the one hand, this would mean that Deutsche Bank saves more costs compared to UniCredit Bank in Italy, but on the other hand, this means huge political obstacles. Five years ago, German unions strongly opposed the merger of Deutsche Bank and Commerzbank because it could result in up to 0.03 million people losing their jobs.

The employee representatives on the supervisory board of Commerzbank are unlikely to welcome Deutsche Bank's acquisition, as they have already issued a warning about possible layoffs at UniCredit Bank and called for a French bank to act as a white knight. This seems unlikely to happen: the main competing bidder Banque Nationale de Paris is in the process of acquiring the investment management division of ANZ, and has repeatedly stated that it is not interested in bank acquisitions. ING Group is a potential bidder, but its CEO Steven van Rijswijk has expressed interest in smaller-scale transactions.

Seamus Murphy, Managing Director of independent research firm Carraighill, believes that regardless, Commerzbank's stock price will perform strongly, but he thinks it would be better for it to be acquired by UniCredit Bank rather than remaining independent. Murphy said, "Andrea Orcel has proven that he can create value by improving the operations of UniCredit Bank and HVB. The leadership of Commerzbank has not demonstrated this to the same degree."

Davies from Bloomberg says that Deutsche Bank wants to participate in the consolidation of the European banking industry, but for now, sticking to its self-improvement plan is the better choice.

It is understood that Deutsche Bank has just resolved a series of costly issues related to the acquisition of Deutsche Postbank, including IT failures, consumer complaints, labor disputes, and shareholder litigation. Deutsche Bank has agreed to pay about 0.35 billion euros and reach a settlement agreement with over 80 plaintiffs. This will allow Deutsche Bank to release part of the provisions previously made, and it is expected that the pre-tax profit for the third quarter will increase by 0.43 billion euros.

Davies also warns that the bank has little room for error in terms of profitability and capital levels. The bank's condition is much better than in the past few years, but its stock price is still significantly discounted from book value, and there is a reason for that. Deutsche Bank CEO Christian Sewing has stated that the bank's first focus is on its own growth and profitability, rather than the German government's plan to reduce its stake in Commerzbank.

Overall, Deutsche Bank is facing a decision on whether to participate in the bidding for Commerzbank, and this decision will have a significant impact on its competitive position in Germany and even the European banking industry.