Commerzbank to buy Dresdner, axe 9,000 jobs

Commerzbank will buy its competitor in two steps, taking 60% this year and the rest in 2009 to create a rival to sector leader Deutsche Bank in Europe's biggest economy.

Much of the purchase price will be paid to Allianz in the form of shares, leaving Europe's biggest insurer with a stake of almost 30% in the new Commerzbank.

The new owner plans to close more than a third of the combined group's 1,900 branches and pare back laggard investment bank Dresdner Kleinwort, which has been further hobbled by the credit crunch.

The deal puts a price tag of €9.8 billion on Dresdner. Allianz paid €24 billion for it in 2001.

A further strand to the deal sees Allianz buying Commerzbank's fund management business Cominvest.

Analysts and insiders were skeptical over whether the pairing of what many see as two mediocre performers could create a financial champion.

“It is good for Allianz. In the seven years they have owned Dresdner they have learned that they don't have a clue about running a bank,” said Dirk Becker, an analyst with Landsbanki Kepler.

“But it is a huge integration. We will see in half a year that something will go wrong.”

The sale casts a dark cloud over Dresdner Kleinwort, the group's accident-prone investment bank which helped cause the insurer $5 billion of writedowns during the credit crunch.

Part of the purchase price that Commerzbank is paying to Allianz will be ringfenced to cover any further writedowns.

About 2,500 of the 9,000 jobs that will be cut are set be lost outside Germany, and Commerzbank flagged investment banking as one of the businesses where the axe will fall. Many of the non-German job losses will happen at Dresdner Kleinwort in London.

The sale will give Commerzbank a badly needed leg-up in its home market, which is dominated by state not-for-profit lenders, and allow Allianz to end an unhappy marriage that unsuccessfully tried to match investment bankers with insurance salesmen.

Architects of the Dresdner takeover had hoped to sell bank accounts to Allianz customers as well as products such as car insurance at bank branches.

Instead, investor tempers rose and Dresdner racked up billions in losses.

In June last year, Reuters reported that Allianz had begun to consider its options for Dresdner. The resulting jump in the insurer's share price reflected the degree of investor frustration with the botched takeover.

But finding a buyer has not been easy, mostly because of Dresdner's laggard investment bank - a business, said one insider, which Allianz had never intended to keep.

“It was clear from the start to Allianz that they did not want to keep the investment bank,” this person said. “But when the time was right to sell it - at the top of the investment banking boom in late 2006 - they fell asleep at the wheel.”

The sale will beef up Commerzbank. Despite being one of the country's biggest lenders, it is still a lightweight by European standards, with a market value of about €13 billion - less than half that of Frankfurt neighbor Deutsche Bank.

China Development Bank had also been interested in Dresdner but was sidelined in the face of opposition in both countries' capitals to a deal. (Reuters)