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Business

Bank Merger Speculation Abounds as Market Pressure Continues

As pressure on financial markets grows around the world, a major reorganization of the German banking sector could be in store as institutions consolidate. Thousands of jobs may hang in the balance.

Frankfurt's skyline

There could be fewer logos topping the buildings of Frankfurt's banks in the future

While Saxony's SachsenLB gave up its independence to its fellow state-run bank Landesbank Baden-Wuettemberg and billions of euros worth of support keep the Dusseldorf-based IKB afloat by the state-owned development bank KfW other smaller banks, like the Weserbank, have quietly closed their doors.

The global markets crisis has led to a consolidation in the German banking sector but has not shook the country of its system of state banks, according to Reinhard Schmidt, who heads the University of Frankfurt's chair of international banking and finance.

"Something had to happen with the state banks and the crisis sped up that process," he said, adding that there is a growing tendency among private banks to consolidate. "But I do not see the banks being unable to function in their old, fundamental ways as a possible consequence of the crisis."

Foreign banks want in

Unicredit HQ

Milan's Unicredit bought a German bank three years ago

Though Germany is often regarded as "overbanked" with too many banks fighting for a limited amount of business, foreign institutions are eager to enter the German market.

Three years ago, Italy's Unicredit bought the German Hypovereinsbank three years ago and Citibank's German subsidiary was taken over by France's Credit Mutuel.

The French bank was willing to pay over 5 billion euros ($7.8 billion), outbidding Deutsche Bank, for the US banking giant's German operations.

But Deutsche quickly licked it wounds and is reportedly now eying Germany's Postbank, which needs a fiscal injection to support faltering delivery services in the United States.

But as much as the Postbank needs the money -- and as eager as the German government, the bank's indirect main shareholder, would be to turn the bank into national financial powerhouse -- Postbank executives have said they aren't willing to accept an offer that undervalues the bank.

Postbank board member Wolfgang Klein said he has an ideal partner in mind but would not confirm whether Deutsche was who he had in mind. The bank's large base of customers who keep their money in simply checking and savings accounts make Postbank attractive to institutions eager to sell additional investment services.

Dresdner another takeover target

Postbank logo

If Postbank and Deutsche join up, it could set off a spree of mergers

According to the German banking rumor mill in Frankfurt, if Deutsch Postbank tie the knot, a merger between Commerzbank and Dresdner Bank wouldn't be far behind. The Allianz Group would reportedly be willing to part ways with the bank it bought for 24 million euros in 2001.

"Allianz never got Dresdner Bank under control," said Dieter Hein, a bank analyst at Fairesearch, adding that the combination of an insurance company and bank has seldom proven profitable. "A new concept needs to be put in place and that is definitely better to implement with a different bank."

Employees to pay the price?

Such a merger would likely end up with thousands of bank employees being made redundant as services and branch offices were combined, according to Franz Scheidel, a member of Dresdner's workers council. German media have reported that as many as 16,000 people could lose their jobs in a Commerzbank-Dresdner tie up.

French banking giant BNP Paribas has also been named as a potential Dresdener suitor.

"We know that there are very intense talks with Commerzbank as well as other banks," Scheidel said at a recent Verdi union demonstration. "No matter which fusion comes, it will cost thousands of jobs."

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