After Deal Talks Collapse, German Banks Struggle to Set Course

The rehabilitation of Europe’s financial industry will have to wait.

Deutsche Bank AG and Commerzbank AG, the two biggest banks in the continent’s dominant economy, pulled the plug on government-brokered merger talks designed to forge one strong institution out of two struggling firms. The collapse of their talks sets the stage for an era of matchmaking for the region’s financiers.

The failure to agree on a deal now forces Deutsche Bank to come up with its fifth turnaround plan since 2015 and allay investor concern about how it will revive growth and boost shareholders returns. For Commerzbank, still 15 percent-owned ...