Deutsche, Dresdner marriage may cost 16,000 jobs

Key supervisory board members are understood to have been briefed about the plans, which will involve insurance giant Allianz AG via its respective holdings of about 22 per cent in Dresdner and 5 per cent in Deutsche.

Industry sources said 16,000 jobs, or 11 per cent of the combined group’s 142,000 workforce, will be shed, some of them through natural wastage. Union fears that as many as 30 per cent of jobs may be axed were "wildly exaggerated", sources said.

The deal will be presented as a merger of equals, but analysts said it will be a clear takeover by Deutsche of Dresdner, which disappointed investors with inadequate core earnings growth last year and a lack of clear future strategy.

"This enables Deutsche to get rid of a problem in Germany, its weak retail banking, and will allow it to focus on wholesale and investment banking," said banking analyst at private bank Merck, Finck, Konrad Becker.

Its profitability will rise, but so will the volatility of its results which will be even more dependent on the vagaries of financial markets, Becker said.

Shares in Deutsche fell 3 per cent to 92 euros on Wednesday amid profit-taking after strong gains on Tuesday prompted by news that the two banks were talking. Dresdner kept rising and was up 1 per cent at 57.55 euros.

Analysts said Deutsche would have to offer a considerable premium to Dresdner’s market value of 31.16 billion euros at Tuesday’s close. Deutsche was valued at 58.28 billion.

Deutsche declined to comment on a report that its supervisory board chief Hilmar Kopper, the former chief executive of Deutsche Bank, and a member of the supervisory board, Ulrich Cartellieri, were opposed to a merger.

It was not immediately clear what will happen to the two bank’s investment banking arms.

Investment bankers at Deutsche and Dresdner Kleinwort Benson fear hundreds of jobs will be axed. Analysts said Deutsche might consider the option of selling all or part of Dresdner Kleinwort Benson.

The main aim of the merger is to enable the banks to cut costs in their unprofitable retail banking businesses and focus on the more lucrative areas of investment banking, asset management and banking for high net worth customers.

With the government planning to scrap capital gains tax on corporate share disposals from 2001, the new banking giant would be able to unlock billions of euros in hidden reserves in industrial shareholdings, including Deutsche’s 12 per cent stake in DaimlerChrysler.

That funds raised would give it the financial muscle to expand globally and take on the so-called bulge bracket of top US banks, including Goldman Sachs and Merrill Lynch which are challenging European banks on their home turf, analysts said.

It will also put HypoVereinsbank AG and Commerzbank AG under added pressure to find a partner and perhaps even merge.

Under the merger plan, Allianz will obtain a large minority stake in Deutsche’s retail banking unit Deutsche Bank 24 and take control of Deutsche’s DWS asset management unit, one of Europe’s biggest fund firms with almost $100 billion under management.

The deal will boost Allianz’s ability to distribute its insurance products via bank branches. Dresdner’s DIT fund arm is expected to remain with the merging group.

Dresdner will merge its own retail business with Bank 24 in a move that will dilute Allianz’s stake in the retail operation.

The retail banking arm will then be restructured and close about a third of the combined bank’s 3,000 branches, industry sources said.

There is a posibility the combined bank, which will be called Deutsche Bank but will use the green colouring of Dresdner’s logo, will eventually reduce its stake in the retail banking operation.

It will initially be run jointly by Deutsche and Dresdner chief executives Rolf Breuer and Bernhard Walter, but who will ultimately take the reins is still unclear.

Industry sources said the talks, which began last month, were initiated by Dresdner Bank chief executive Bernhard Walter following a breakdown in merger talks between Dresdner and Munich-based HypoVereinsbank AG.

Industry sources said Goldman Sachs was advising Dresdner in its talks with Deutsche, which is using its in-house expertise.

Deutsche reported a 50 per cent jump in 1999 net profit as trading income offset costs from restructuring and integrating Bankers Trust, which it bought last year for $9 billion. It had total assets of 840 billion euros ($806.9 billion) at end 1999.

Dresdner had assets of 410 billion euros as of September 30, 1999.

The planned merger of Industrial Bank of Japan with FujiBank and Dai-Ichi Kangyo Bank, scheduled for 2002, would form a bank with assets of about $1.5 trillion that would knock the possible new German giant off the top spot.