FRANKFURT (Reuters) - Time is running out for Deutsche Bank to turn around on its own, making a merger with rival Commerzbank more likely, two people with knowledge of the matter said on Thursday.

FILE PHOTO - Banners of Deutsche Bank and Commerzbank are pictured in front of a trader at the stock exchange in Frankfurt, Germany, September 30, 2016. REUTERS/Kai Pfaffenbach

Bank executives, analysts, government officials and some investors thought until some months ago that both banks had more time to turn around independently, but that opinion has recently changed, one of the people said.

A major investor is awaiting market reaction to both banks’ earnings over the next couple of weeks before deciding on the need for a merger, said a second person close to the investor.

“Then we will decide whether we will change our view,” the person said. The investor wouldn’t oppose a merger if the government wanted one, the person said.

Deutsche Bank, Commerzbank, and the German finance ministry declined to comment.

Speculation of a merger between the two has heightened under the tenure of Finance Minister Olaf Scholz, who has spoken in favor of strong banks. His team has met frequently with executives of Deutsche, Commerzbank and major shareholders.

Deutsche is considered one of the most important banks for the global financial system, along with JPMorgan, Bank of America and Citigroup.

But Deutsche has been plagued by three years of losses, ratings downgrades, failed stress tests, and money laundering scandals. A $7.2 billion U.S. fine in 2017 for its role in the mortgage market scandal was a major blow that spooked clients.

A merger between Deutsche and a European bank was also an option but less likely because it would be harder to sell to politicians, said the first person with knowledge of the matter.

Deutsche Bank Chief Executive Officer Christian Sewing, who assumed the helm last year in a sudden management shake-up, has repeatedly said in public that he was focused on the bank’s “homework” - returning the bank to profitability. He announced job cuts last year and moved to slim down the sprawling investment bank division.

Earlier on Thursday, a separate source at Deutsche said the bank was focused on achieving sustainable profitability, seeking to distance the lender from talk of a merger with Commerzbank.

The suggestion that such a merger is the only option for Deutsche is “completely false”, said the source, speaking on condition of anonymity.

Shares in both lenders tumbled on Thursday after Bloomberg reported that Deutsche was expecting a government-brokered merger with Commerzbank by mid-year if efforts to restructure the lender fall short of targets.

Deutsche shares closed 4 percent lower, while Commerzbank - still partially held by the government after a bailout - was 6.7 percent weaker.

On Friday, Deutsche Bank will report its 2018 results and analysts expect it to deliver its first annual profit since 2014.

CEO Sewing is also likely to face further questions about a possible merger.

A Deutsche supervisory board member said last week that there was no desire among board members for a merger with Commerzbank.

Commerzbank reports earnings on Feb. 14.

The Verdi German labor union has said a merger of the no. 1 and no. 2 banks would lead to large job cuts.

Gildas Surry, a portfolio manager with Axiom, which holds Deutsche Bank bonds, said that merging the two banks would be like mixing oil with vinegar, with questionable cost and revenue synergies.

But those hurdles may not be enough to sway governments pressing for banking consolidation. “It is very difficult for politicians to forgo their national champions,” he said.