Deutsche Bank has had merger talks with US bank Citigroup, it emerged on Thursday, as the German bank announced a new target to nearly double underlying pre-tax profits in 2004 after strong growth last year.
Germany's biggest bank and Citigroup, the world's leading financial services group, held exploratory talks about a Citigroup take-over last month, resurrecting discussions from 2003, but they came to nothing, sources familiar with the situation said.
"The talks were warmed up but have cooled down again," one source said. "There is silence now."
Deutsche Bank Chief Executive Josef Ackermann declined to comment on Citigroup but said he was not currently in negotiations with anyone.
"I don't expect a hostile take-over and we are not ready for a friendly one," he told reporters after reporting that the bank made a fourth-quarter net profit of 436 million euros ($547 million), in line with market expectations and turning around from a net loss of 105 million in the same period in 2002.
"First we want to show what we can do," he added.
By 1404 GMT Deutsche Bank shares were trading two percent higher at 64.17 euros, outperforming Europe's banking sector, which was up 0.15 percent.
"Deutsche Bank is being driven primarily by the Citigroup report," said a trader. "If I wanted to buy a German bank I would also want to take the market leader."
Speaking at an investor seminar in Singapore, Citigroup Chief Executive Charles Prince said earlier on Thursday that he was not interested in mergers that would fundamentally change the nature of his bank, but he would look at filling strategic gaps.
"There will be more of an emphasis on organic growth and perhaps a slightly smaller emphasis on large transactions," Prince said.
Ackermann, currently on trial over his role in awarding payments to Mannesmann managers during the mobile phone company's take-over by Vodafone, spent last year ditching non-core businesses and assets and slashing costs to boost Deutsche's relatively low market value of $46 billion, compared with Swiss rival UBS's $85 billion and Citi's $255 billion.
Its shares outperformed European and US peers last year as investors welcomed the overhaul and eyed the possibility of a take-over following mergers by rivals in the United States.
Speaking at the results news conference on Thursday, Ackermann said the bank's restructuring had left it "very favourably positioned" for industry consolidation but the recent bank mergers in the United States would not necessarily mean a rush to do deals in Europe.
Although the Mannesmann trial attracts huge public attention in Germany, it has not yet damaged the bank nor its stock.
But this could change if Ackermann were to be found guilty of breach of trust - a crime in Germany which bears a maximum prison sentence of 10 years - and was forced to resign.
His departure could throw the bank into a strategic crisis and make it prey for foreign rivals seeking to strengthen their foothold in Europe's largest economy.
Despite last year's progress, Deutsche still lags many international rivals in terms of profitability, in part due to the dominant role of state and co-operative banks in Germany.
Ackermann said Deutsche was aiming to achieve a return on equity of 25 percent in the next two years, up from 13 percent in 2003, but would do all it could to hit that target this year.
Deutsche was aiming to nearly double underlying pre-tax profits - stripped of the effects of sales of assets or businesses - to 6.5 billion euros ($8.2 billion) this year, up from 3.6 billion in 2003 and 1.4 billion in 2002, he said.
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