Differences Shoot Down German Bank Mega-Merger

Dresdner Bank executives on Wednesday abruptly called off their planned merger with Deutsche Bank, accusing it of reneging on the terms of a deal that could have created the world’s biggest bank.

Both companies cited irreconcilable differences over the fate of Dresdner’s investment banking arm, London-based Dresdner Kleinwort Benson, as the main stumbling block to reaching a deal that would have created a $1.2-trillion colossus.

A clearly irritated Chancellor Gerhard Schroeder told journalists in Dresden, where he was on a visit, that he had “seen more mature decisions in the business sector.”

The two German banks had announced less than a month ago what would have been a $32-billion takeover by Deutsche that would allow major savings by eliminating duplicated services, especially in the low-profit retail sphere. The combined institution, with nearly 3,000 bank branches and 80,000 employees, was expecting to save about $2.8 billion by closing 800 retail banking sites and laying off at least 16,000 workers.

At the time, Deutsche Bank chief Rolf Breuer had praised Dresdner’s investment banking unit as a “jewel” in the dowry the No. 3 bank in Germany was bringing into the corporate marriage. But he had more recently pushed Dresdner to sell the unit, which employs 7,500 people and largely duplicates Deutsche’s own services.

“In both word and spirit, Deutsche Bank proceeded after the deal was announced to try to sell part or all of Dresdner’s investment banking unit,” Dresdner said in its surprise statement announcing the merger talks had been abandoned.

At an impromptu news conference in Frankfurt, Breuer told journalists he regretted the failure of the deal that would have created the world’s biggest or second-biggest bank, depending on the ultimate value of a three-way merger underway in Japan.

“We were so far apart from one another, it just wasn’t possible” to work out the differences, Breuer said.

Germany’s huge retail labor union, DAG, expressed short-term relief with the collapse of the merger talks. But spokesman Ingo Schwope observed that major structural changes in the banking industry still are likely as Germany sheds its decades-old habits of collaboration among government, labor and management.

Some analysts blamed the consolidation failure on a premature announcement and clumsy handling of the groundwork. As rumors of discord increasingly clouded the merger talks, Deutsche Bank’s shares fell 20% during the last four weeks and Dresdner’s lost 18% of their value. Trading on the Frankfurt DAX exchange was suspended after the announcement that the merger was off, but both banks gained more than 4% after activity resumed.

Shares in the giant Allianz insurance network that has significant holdings in both banks dropped by nearly 14%, casting the Munich-based company as the main loser in the breakup.

Allianz, which owns nearly 5% of Deutsche Bank and 21.5% of Dresdner, had planned to acquire Deutsche’s DWS mutual fund company--Germany’s largest--and a controlling stake in the joint retail operations to gain access to more than 10 million customers.

“Allianz extraordinarily regrets that the planned transaction between Deutsche Bank and Dresdner Bank is not to come about,” the insurer said in a statement released in Munich.

The combined banks, which were to operate under the name Deutsche Bank but with the green logos of Dresdner, would have rivaled the Japanese giant to be formed by Dai-Ichi Kangyo Bank, Fuji Bank and Industrial Bank of Japan. That financial empire would control about $1.2 trillion in assets, about the same as Deutsche and Dresdner would or even a fraction more.