FRANKFURT (Reuters) - Deutsche Bank chief executive Christian Sewing believes there is a strong case for a merger with Commerzbank, a person with direct knowledge of his thinking said.

Sewing’s view sets the stage for a potential showdown with labor unions who fear as many as 30,000 job cuts in Germany’s two biggest banks become one. He will also have to persuade some investors who are skeptical about the merits of a tie-up.

The supervisory boards at both banks met separately on Thursday and discussed the proposed merger, but no decisions were taken by either.

Deutsche Bank and Commerzbank declined to comment.

Sewing sees a merger bringing multiple benefits, including “clear” dominance in the combined bank’s German home market, scale, and shared technology costs, the person said before Thursday’s Deutsche Bank supervisory board meeting.

He also believes that a combined entity would improve the cost of funding, with “the best funding ever”, the person said, adding that jobs will need to be cut with or without a merger.

Deutsche Bank’s CEO has urged investors to be patient in recent months, preferring to focus on an internal restructuring before taking on a big project, other people with knowledge of his thinking have said.

Sewing’s until now private view also contrasts with the more neutral tone set in a letter to employees on Sunday after both Deutsche Bank and Commerzbank confirmed talks. Sewing said then that many factors could still prevent a merger.

And Deutsche Bank would not have entered talks if the bank expected negotiations to fail, a second person with knowledge of Sewing’s thinking said.

Deutsche Bank’s supervisory board debated the merger for three hours, a person with direct knowledge of the matter said after the meeting. Sewing informed the board about the possible merger and said the bank was at the beginning of doing due diligence, said the person.

At Commerzbank’s supervisory board meeting, labor representatives voiced concerns about the merger, another person with direct knowledge of the matter said.

The powerful Verdi labor union, which is on the supervisory boards of both banks, has voiced fierce objections to a merger, saying that as many as 30,000 jobs are at risk over the long term.

Together, the banks employ 140,000 people worldwide. A Verdi spokeswoman said on Thursday that its position has not changed.

RESERVATIONS

At least three of Deutsche Bank’s top investors have voiced reservations about a merger, three people with knowledge of the matter said. Two of them were awaiting details from Sewing and his colleagues at Thursday’s meeting, two of the people said.

Ratings agency Moody’s said this week that a successful tie-up may lift the banks’ profit, but earnings would remain below global competitors and a deal now would delay their overhauls.

“We would view the impediments to execution on such a deal as very significant,” Moody’s said.

FILE PHOTO: Christian Sewing, CEO of Deutsche Bank AG, addresses the media during the bank's annual news conference in Frankfurt, Germany, February 1, 2019. REUTERS/Kai Pfaffenbach/File Photo

Some German officials have pushed for a merger because they want a strong bank to compete with U.S. and Chinese players.

However, euro zone banking watchdogs on Thursday said banks planning mergers should make sure they could be wound down in a crisis to avoid taxpayers having to foot the bill.

“If a bank becomes too big, complex or interconnected... it needs to have additional capital,” the ECB’s top watchdog Andrea Enria said when asked in the European Parliament about a possible tie-up between Deutsche Bank and Commerzbank.

Since the financial crisis a decade ago, European banks remain relatively weak compared with their U.S. counterparts, said John McFarlane, chairman of Barclays, and it will take a while for them to recover.

“Even if you get consolidation in Europe, take Deutsche if that ever happens, it will still be less than 10 percent of JP Morgan’s market cap(italization) and still be smaller than Royal Bank of Scotland,” he said.