2 Banks Plan Historic Merger in Germany

The boards of two German banking giants agreed Wednesday to a $32-billion merger that would create one of the world’s largest banks and eliminate a reported 16,000 jobs.

Deutsche Bank, Germany’s largest, and Dresdner Bank, its third-largest, are to officially announce the merger at a news conference today in Frankfurt, but sources confirmed the deal Wednesday.

The planned merger marks the first serious move toward bank consolidation in Germany. Though German banks are large, they are late in attempting the consolidation that has occurred in the United States and in some Western European countries.

Banks in Switzerland, Italy, Spain and France are combining to make their retail operations more efficient and to position themselves for market competition as barriers to movement of capital in Europe continue to fall.

The new bank would be called Deutsche Bank, but its logo would be in the vivid green that is Dresdner’s official color. Officials declined to speculate on how many jobs might be cut as a result of the combination, but German newspapers Wednesday were reporting the worst.

“Bank Merger: 16,000 Jobs Gone,” a large headline in Bild Zeitung said. “Bank Merger Scares Labor Unions: One-third of 80,000 jobs in danger, unrest in the branches,” Berlin’s Tagespiegel said.

“It’s going to be a full merger,” said Gerhard Renner, a union representative on the Deutsche board, after a meeting with other board members. “It was a difficult meeting. There were critical voices on the board.” He didn’t elaborate.

The new entity, which would be created through a stock swap, reportedly plans to separate its retail functions--that is, those that serve individual customers in person--from its investment side, perhaps spinning off retail operations into a separate entity.

Insurance giant Allianz, which owns shares in both banks, would take a stake in the retail unit, which may eventually sell shares to the public. At that point, Germany’s No. 1 insurer would have the opportunity to take control.

Dresdner shares fell 1.8%, paring Tuesday’s gain of 20%. It has a market value of $27.8 billion, the basis for calculating the valuation.

Deutsche Bank shares fell 2.3% after rising 9.2% Tuesday, giving it a market value of $54.7 billion.

Deutsche and Dresdner want to concentrate on underwriting securities, advising on mergers, trading stocks and bonds, and managing customers’ money. In the first nine months of their fiscal year, those activities generated more than two-thirds of pretax profit.

The branch network, meanwhile, would be able to close as many as half of the combined 3,000 branches and fire staff to cut annual costs, analysts said. A total of 14,000 jobs would be cut in Germany, Renner said.

It could also move more services to the Internet. Deutsche Bank Chairman Rolf-Ernst Breuer has been a major proponent of Internet banking, and analysts speculated the new firm would focus on online customers.

If so, it would be a bold move into the relative unknown, analysts said.

“It frees Deutsche Bank from the shackles of low profitability in retail banking. But they are burning their bridges behind them” if Internet banking proves less successful than expected in Germany, said Matthew Czepliewicz of Salomon Smith Barney.

Deutsche, which is working with Yahoo Inc. and AOL Europe, said it planned to spend $960 million annually on the Internet when the bank unveiled its strategy Feb. 21, fueling a 5.8% jump in its share price that day.

Buying Dresdner wouldn’t be Deutsche Bank’s first major purchase at home. The company, founded in 1870 to help finance German industry, in 1929 combined with its then biggest domestic rival, Disconto-Gesellschaft, to form Deutsche Bank und Disconto-Gesellschaft, then Europe’s biggest bank.

The merger, announced a month before Wall Street crashed in October 1929, created a company with about 24,000 employees, a fourth of which lost their jobs.