But look again. The merger of Deutsche Bank and Dresdner Bank, crosstown Frankfurt rivals for more than a century, will create the world’s largest bank by assets (totaling about 1.2 trillion). Its market capitalization, at about 80 billion, will be one of the richest in Europe. Most important, the deal–a three-way asset-swap between the two banks and Munich insurance giant Allianz–is a milestone in the unwinding of Germany’s system of cross shareholdings, just the kind of restructuring the country needs to get its economy firing on all cylinders. “It represents the final crumbling of fortress Germany,” says Frank Beelitz, who until recently headed Lehman Brothers in Germany. Why does it matter? Ridding Germany of such an incestuous business culture leads to greater transparency, which makes it easier for investors to hold managers accountable. The managers, in turn, are free to allocate their capital to more profitable uses. And such divestments are now poised to accelerate, thanks to a proposal to drop capital-gains taxes topping 50 percent next year. “This deal gets the ball rolling,” says Salomon Smith Barney analyst Matthias Czepliewicz.
There’s even an Internet angle. In a bold move, Deutsche Bank (as the new institution will be known) will withdraw from retail banking in Germany’s overbanked home market. Allianz will take control of a bricks-and-mortar retail unit called Bank 24, which will be listed separately within three years. Just last month Deutsche chairman Rolf Breuer announced big investment plans for e-banking that include partnerships with AOL and SAP. This is an aggressive, if belated, response to high-flying local upstarts like ConSors, a purely online brokerage. The other main business Breuer wants to concentrate on is investment banking; he’d like to be the Goldman Sachs of Europe. Though Breuer bought Bankers Trust in 1999, Deutsche still lags behind U.S. giants such as Goldman and Morgan Stanley.
Throughout Europe, banks are bulking up in their home markets to prepare for the day when Europe becomes a single banking market–and cross-border deals become routine. Banks in France, Italy and Spain have consolidated much faster than in Germany. “Market value is critical to bargaining power,” notes Keith Baird, bank analyst for Enskilda Securities in London. “Now Deutsche Bank is as big as any potential partner in Europe.”
To take advantage of its size, the new Deutsche will have to prove it can be profitable. The market was disappointed that the behemoth expects to squeeze out only 2.9 billion in costs. Deutsche’s share price, having climbed 9.3 percent on word of the deal, slumped 21 percent by the end of the week. After surging 25 percent, Dresdner’s share price erased all its gains.
The new bank will shed about 16,000 jobs, though neither Breuer nor Dresdner chief Bernhard Walter will lose his. Despite talk of “equal” status, it’s clearly Breuer’s show. But Germany is getting used to such mergers. Union leaders acknowledge that this was inevitable and that more restructuring is sure to come. Chancellor Gerhard Schroder, scorned for his efforts to criticize Vodafone, was quieter this time. He said the bank “can play a strong role in international financial markets.” That’s certainly Breuer’s hope. With 33 billion in capital reserves, “we have the gunpowder, to put it crudely,” he says. The main question is whether he will first try to add another U.S. investment-banking partner to his stable, or buy a bank in Europe. Either way, the next two years promise to be anything but dull.
