Exclusive-European Rearmament Bank seeks merger with JPMorgan-backed rival multilateral lender

By Maria Martinez and Iain Withers

BERLIN/LONDON, Dec 3 - The European Rearmament Bank (ERB), an initiative to create a state-backed lender for European defence projects, has proposed merging with the Defence, Security and Resilience Bank (DSRB) to consolidate efforts and strengthen their appeal to governments.

"I've written to them (DSRB) last week to say that we would like to merge the two teams because it's not helpful to have two organizations both talking about creating a multilateral bank and competing with each other," Guy de Selliers, a leader of the ERB initiative, said on Tuesday at an event in Berlin.

DSRB told Reuters on Wednesday that it doesn't comment on speculation. Deutsche Bank and JPMorgan lead a group of half a dozen banks that support DSRB, according to the multilateral lender's website. 

Both ERB and DSRB aim to create an institution with a triple-A credit rating - the highest - to rapidly mobilize capital for European defence procurement, but differ on membership and lending terms. 

ERB focuses on European NATO members and lending at market rates. DSRB has sought a broader membership including Canada.

Talks with governments are ongoing, but so far only Poland has endorsed the initiative, ERB's de Selliers said in Berlin. Poland's foreign ministry did not immediately reply to a request for comment.

"We've talked to lots of governments and we've had very positive responses. Nobody's been able to come up with a fatal flaw," de Selliers said.

France has praised the proposal but raised concerns about sovereignty and financial capacity, de Selliers said, adding that the team hoped Paris would "come around". France's finance ministry did not immediately respond to a request for comment.

SIMILAR PROPOSALS, DIFFERENT SCOPE

The ERB initiative was proposed in January by Britain's former defence chief General Nick Carter, former EBRD Executive Committee member de Selliers, and Edward Lucas, senior adviser at the Center for European Policy Analysis in Washington.

It invited European NATO countries as shareholders and is hoping to generate up to 250 billion euros ($292 billion) of lending in the capital markets by leveraging about 10 billion euros from member shareholders, paid in over three years, according to a memo from the ERB shared with Reuters on Sunday.

DSRB, proposed by former NATO security advisers, senior ex-military personnel and bankers, aims to raise 100 billion pounds ($133 billion) to fund defence projects, particularly in countries that may struggle to access cheaper finance.

It suffered a setback in September when UK officials told Reuters it would not back the initiative.

DSRB said at the time that there was broad international interest in financial mechanisms for defence financing but that governments were at an early stage in this process. "As is always the case with proposed multilateral institutions, no nation has yet made a formal commitment," it added.

MULTILATERAL LENDERS' PROPOSALS SEEK GOVERNMENT BACKING

The ERB group has also had talks with the German government, which de Selliers said were ongoing, while declining to provide details. Germany's finance ministry declined to comment.

"We are in a defence emergency," said Jessica Berlin, head of the ERB initiative in Germany and senior fellow at the Center for European Policy Analysis. "This bank needs Germany, and Germany needs this bank."

Urgency in government talks has fluctuated with geopolitical developments, peaking in the run-up to the NATO summit earlier this year and losing momentum afterwards, de Selliers said, as peace talks to end the war in Ukraine advance.

"What we're doing now is trying to get political leaders to move it from problem number five up to problem number one and actually get it done."

($1 = 0.7520 pounds)

($1 = 0.8576 euros)

(Reporting by Maria Martinez in Berlin and Iain Withers in London; additional reporting by Inti Landauro and Anna Wlodarczak-Semczuk. Editing by Elisa Martinuzzi, Anousha Sakoui and Mark Potter)