2 German Banks Announce Merger Deal

The reformation of Germany’s banking industry began Monday with two Bavarian banks unveiling a bold plan to merge in a $10.4-billion deal that will create a German banking giant second only to the mighty Deutsche Bank.

Hypobank and Vereinsbank, as they are commonly known, said Monday that together they will have assets of $414.5 billion, second only to Deutsche Bank’s $494.9 billion. The merged bank would surpass France’s Credit Agricole as No. 2 in Europe and America’s largest bank.

“We don’t want to be another big bank in Germany. What we are striving to create is a new type of bank,” said Eberhard Martini, chairman of Hypobank.

Driving the deal is an overall eagerness by German banks to streamline before the 1999 introduction of a single European currency, the euro. Germany has one bank branch for every 2,154 inhabitants, nearly twice as many as in the United States or Britain.

The stock market’s focus is now likely to shift to other potential merger candidates, heightening what had already been intense interest in bank shares. “The Gordian knot has been cut,” one analyst said, predicting further mergers.

The merged Vereinsbank and Hypobank will focus on real estate financing and asset management. It will have 3.5 million private clients and rank as the biggest mortgage bank in Europe, with about 12% of Germany’s real estate financing market.

Officially Bayerische Hypotheken und Wechselbank and Bayerische Vereinsbank, the combined banks will take the name Bayerische Hypo-und Vereinsbank once the deal is done.

In addition to its international strength, the new bank will have a presence in the United States. Vereinsbank has had operations in the nation for decades, with offices in New York, Chicago, Los Angeles and Miami. Hypobank also has an office in New York.

Analysts gave the merger a mixed reception, calling it a first major step toward necessary consolidation. But they doubted whether the new bank would be free to shed enough jobs.

“The decision is right and positive for Munich as a financial center,” German Finance Minister Theo Waigel said. But he added that politicians would have to put pressure on the two banks to minimize job cuts.

Martini and Vereinsbank Chairman Albrecht Schmidt, both of whom have said they are available to head the new bank, refused to specify how many jobs of a combined 40,000 would be shed.

“We’re not embarking on a cost defensive but on a quality offensive,” Schmidt said. “We need every hard-working and qualified man and woman on board our larger ship in order to make progress on this stormy world market.”

Terms of the complex, two-step merger call for Vereinsbank to swap most of its 10% holding in German insurance giant Allianz for Hypobank shares. Specifically, it will swap 19.3 million shares at a ratio of one for each six Hypobank shares.

Based on Monday’s closing prices, that will result in a purchase of 43% of Hypobank for $4.6 billion in Allianz stock. U.S. shareholders cannot participate in the exchange offer.