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Deutsche to go global
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March 8, 2000: 7:33 a.m. ET
Takeover of Dresdner would refocus Deutsche Bank strategy; 16,000 jobs could go
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LONDON (CNNfn) - "Bigger really is better" was the broad consensus among analysts Wednesday to Deutsche Bank's expected takeover of its German rival Dresdner Bank to create one of the world's largest financial institutions.
Deutsche is expected to announce Thursday it will acquire Dresdner, capitalized at 28 billion euros ($26.8 billion) in a deal that will transform the German banking industry and create a national champion to compete harder with rivals throughout Europe and the rest of the world. Combining the two would also jump-start Deutsche's ambition to join the top table of global investment banks.
As the enlarged bank seeks to drive costs down, it could cut as many as 16,000 jobs from a global workforce of 90,000, said reports published in Germany.
 The new bank, to be known as Deutsche Bank Worldwide according to a report in the Wall Street Journal, would have a market value of 85 billion euros and assets of 1.23 trillion euros. That would eclipse Citigroup (C: Research, Estimates) in scale, though the planned merger of Japan's Fuji Bank, IBJ and DKB later this year would relegate it to the global number two spot by asset value.
Deutsche said on Tuesday it was in "advanced co-operation" talks with Dresdner and would say more on Thursday.
"This is a takeover, not a merger of equals," said Adrian Pilz, a banks analyst at Fox- Pitt, Kelton in London, who said Deutsche would remain the dominant brand and provide most of the senior management. Pilz welcomed a deal that he estimated would cut 1.8 billion euros, some 8 percent, from the combined cost base.
 The most significant savings will come from merging the banks' branch networks to create a domestic leader with a share of around 10 percent of the fragmented German retail banking market, in which state-controlled savings banks account for 70 percent. The intense competition has led Deutsche's senior management to plot a path away from relatively unprofitable branch banking toward corporate banking, asset management and trading. The banks plan to close one-third of their 3,000 branches, according to German news reports.
Allianz as kingmaker
Pilz believes that the deal was instigated by Allianz, Europe's second-largest insurer which owns 21.7 percent of Dresdner and has a 5 percent stake in Deutsche. Deutsche and Dresdner held unsuccessful talks last year to merge their retail operations, which have been a drag on earnings.
Pilz said Allianz became frustrated with Dresdner's performance and its failure to reach a deal, and agreed to "hand" Germany's third-largest bank to Deutsche in return for a cooperation pact. Allianz is thought to have feared it might become a takeover target for Deutsche. The insurer was also linked to a merger with HypoVereinsbank, Germany's second-largest bank.
Allianz is set to take a minority stake in the new entity's retail bank business, analysts said, adding that they expect this unit to be floated following the takeover, and after heavy investment to boost its Internet banking presence.
The retail operation will boost the distribution network for Allianz's own savings products, transforming the company into a hybrid "bancassurance" player.
"Allianz becomes the undisputed market leader across the whole retail financial-services area, including insurance, banking and mutual funds," said Pilz.
The other driver for the deal is a proposed German tax change that will allow German financial institutions to unlock the value of the complex web of cross-shareholdings in each other and in blue-chip industrial companies such as DaimlerChrysler. The reforms, currently before the German parliament, would introduce a zero rate tax on capital gains.
The change would also allow Deutsche and Allianz to distance themselves from one another. Deutsche has already cut its stake in Allianz to 7 percent and is planning to turn over to the insurer its retail asset-management arm DWS, whish has funds of $120 billion under management. This might help to forestall any regulatory objections to the Dresdner deal.
Capital markets focus
A big surprise in the details published in newspaper reports Wednesday was that Deutsche Bank is thought likely to keep Dresdner Kleinwort Benson (DKB), its target's investment banking arm.
Analysts said Deutsche has been frustrated with the progress of its existing investment-banking unit since acquiring Bankers Trust in 1998, a deal that it hoped would propel it into the top league of capital markets players.
While investment-banking earnings climbed sharply last year, Deutsche has failed to break the stranglehold of U.S. banks such as Goldman Sachs and Morgan Stanley Dean Witter in Europe's booming mergers and acquisitions market. Adding Dresdner's client base would allow it to jump up the deal league tables, which are influential in securing future business.
That could be bad news for European rivals as the sector's annual earnings reporting season draws to an end amid upbeat verdicts, helped largely by last year's sharp increase in European merger and acquisition activity.
While the Dresdner acquisition isn't expected to be the largest ever in Europe's banking industry - eclipsed in size for example by Royal Bank of Scotland's recent takeover of National Westminster Bank - it is by far the biggest in the German market.
The expected deal has already prompted speculation about a possible tie-up between HypoVereinsbank -formed by the 1998 merger of two Munich-based banks - and Commerzbank, which is ranked fourth in Germany and has also been linked with ABN Amro, CS Group and Citigroup.
Deutsche Bank (FDBK) shares were down 3.2 percent Wednesday morning at 91.80 euros, after climbing 9.1 percent Tuesday. Dresdner Bank (FDRB) shares fell 0.7 percent to 56.65 euros. Allianz (FALV) gained 4.7 percent, HypoVereinsbank (FHVM) was up 4.6 percent and Commerzbank (FCMB) rose 2 percent. 
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