The board of giant German insurer Allianz agreed Sunday to sell its troubled Dresdner banking offshoot to rival Commerzbank. The deal marks a major shift in Germany's fragmented banking business.
The merger got the green light from Dresdner, seen here, and Commerzbank
Commerzbank will pay 9.8 billion euros ($14.35 billion) to buy Dresdner from insurer Allianz, the banks announced on Sunday, Aug. 31.
Commerzbank and Allianz announced the agreement after their supervisory boards signed off on merging Germany's second and third biggest banks at separate meetings Sunday.
With total assets of about 1.09 trillion euros and 12.3 million German customers, forging a new Commerzbank-Dresdner bank will result in the emergence of new banking force in Europe's biggest economy.
The banks told Hesse state Premier Roland Koch on Sunday they would be merging, according to the Frankfurter Allgemeine Zeitung.
Despite the fusion, Deutsche Bank, which failed in a bid to merge with Dresdner eight years ago, would remain the largest bank in the country with assets totaling about 2 trillion euros.
The state-owned China Development Bank (CDB) had also been considered a front runner, and is reported to have offered more money for Dresdner, along with the prospect of fewer job cuts.
Political considerations may have ruined CDB's chances as Germany is currently wary of foreign investors -- especially when it comes to what Berlin considers strategic intrests.
9,000 jobs to be cut
Exactly where the jobs will be cut remains to be seen
But the talk of the merger had already set the alarm bells ringing among unions amid concerns that a corporate marriage between the two banks could lead to job cuts from the financial houses' combined workforce of about 72,000 employees.
Many of the around 1,900 German branches offices of a combined Dresdner-Commerzbank bank are located close to each other.
Commerzbank said it would eliminate 9,000 full-time jobs "in a socially responsible way" as part of the takeover.
Dresdner's investment banking activities in London and Frankfurt were expected to be a main target of the cuts, according to press reports.
Commerzbank chairman Martin Blessing was quoted as saying that "the deal will secure many attractive jobs for the long term, even though unfortunately we cannot keep all current positions."
The head of Dresdner's works committee, Hans-Georg Binder, told the mass market Bild am Sonntag newspaper earlier that he estimated 4,000 jobs would be cut, and that some of them would come from Commerzbank.
A name change would be in store for more than 900 Dresdner sites, Binder added.
Under the deal, Frankfurt-based Commerzbank will buy the 136-year-old Dresdner in two steps, starting by acquiring 60.5per cent of its cross-town rival this year and the rest in 2009.
Sunday's announcement will be the climax of months of speculation about a tie-up between Dresdner and Germany's second-biggest listed bank which was triggered by Allianz's announcement in March that it planned to sell off its banking operation.
The Commerzbank-Dresdner agreement is also likely result in a shakeout at Dresdner's struggling investment house Dresdner Kleinwort, which has been badly hit by the global financial market crisis and the credit crunch.
Indeed, the negotiations over the possible sale of Dresdner to Commerzbank have also been held against the backdrop of worries about the impact on both banks of the fallout from the US subprime mortgage market crisis.
While Dresdner this month posted its fourth consecutive quarterly loss in the three months to the end of June, Commerzbank's mortgage group Eurohypo has been forced to beef up its loss provisions.
Allianz paid about 23 billion euros for Dresdner in 2001 as part of an ambitious plan to sell its pension and insurance schemes through Dresdner's branch network.