By Huw Jones and Marc Jones
LONDON (Reuters) - German Finance Minister Olaf Scholz said on Friday he was in talks with banks about their future and called reports of a merger of Deutsche Bank (DE:DBKGn) and Commerzbank (DE:CBKG) "speculation".
Media reports have said Germany would want a merger of its two main banks to go through before European Parliament elections in May.
Scholz said he couldn't imagine what the elections have to do with the banking sector and was speculation that he could not understand.
"The truth is we are discussing the situation of the financial industry in Germany, it's the task of our government," Scholz told a Bloomberg event in London.
"We are discussing about clearing, we discuss about the development of the banking sector. We are debating whether the different banks, about their situation, for being able to do the necessary things when something needs to be done."
"Today is not a situation where it's necessary to report anything," Scholz said.
There was "no debate" about a setting up a bad bank to hold souring loans of lenders.
Deutsche is considered one of the most important banks for the global financial system, along with JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC) and Citigroup (NYSE:C).
But Deutsche has been plagued by three years of losses, ratings downgrades, failed stress tests, and money laundering scandals. Commerzbank is still partially held by government after a bailout.
"There are two banks, they are doing anything to get enough profits. We are discussing with them about the situation of the banking industry in Germany," Scholz said.
A stable banking system is needed to underpin German companies who want to go abroad to export, he said. It was important to have both international and national banks operating in Germany to serve the economy.
"It's important to have a strong banking sector to do what national champions are doing and able to do."
HARD BREXIT-PROOF
WirtschaftsWoche magazine cited an unnamed source on Friday saying Berlin and Brussels would decide on a potential merger between before the next EU elections in May.
WirtschaftsWoche said Germany and the EU needed to coordinate on the matter because a potential merger could entail action by the German state which could be seen as state aid.
Britain is set to leave the European Union on March 29, but has so far not agreed a divorce settlement with the bloc to ensure a smooth and orderly departure.
Scholz said nobody would have expected that it would still be unclear what sort of Brexit deal there will be just two months before Britain is due to leave the bloc.
"In the end we have to find a solution," Scholz said.
Many of the banks that use London as their EU hub have opened or expanded units in Frankfurt, Paris and elsewhere to avoid disruption from any hard Brexit or limited access to the single market in future.
"It's obvious there will be a lot of business that moves to the EU," Scholz said of the financial services sector, adding that Germany was prepared for a no-deal Brexit.
"Looking at the financial sector, I am absolutely sure that we will be able to manage all the questions related to that," Scholz said.
"There will be a different landscape ... There will still be business in London and it's necessary that we cooperate. We are a prepared for a hard Brexit."