German bank merger creates industry giant

German banking giant Commerzbank AG has entered into the biggest financial sector takeover deal in Europe this year by agreeing to by the Dresdner Bank, an Allianz SE division, for almost ten million euros.

This puts Commerzbank ahead of Deutsche Bank AG In the league of German banking institutions, and makes it a major player on the European market.
    
Two stage merger plan

The purchase will be a two-stage operation, with Commerzbank taking just over 60 percent at first, financed by cash and stocks, and taking on the remainder by an agreed date at the end of 2009. An asset management arm of Commerzbank, Cominvest, will be transferred to Allianz as part of the deal.

Commerzbank will now have a total of 11 millions customers, exceeding Deutsche Bank by just over one million. Allianz had been looking to shed Dresdner, a 23.5 billion euro buy, as it had proved a drain in the company’s resources since purchase.
    

Shares fall in morning trading

Shares in Commerzbank fell by 1.35 euros to 18.74 euros, a fall of just under seven percent, following the announcement this morning, while Allianz fell by 1.5 percent to 112.40 euros.

The troubled state of the financial market has been further exacerbated by Commerzbank admitting it will be looking to shed 9,000 jobs from the new total workforce figure of 67,000 that the Dresdner take-over creates, and has said it will be asking for voluntary redundancies to facilitate the move. The major areas of reduction are said to be the back office and control sections, with investment banking also looking to downscale. No jobs will be forcibly removed prior to 2011, however.  
    

Cost saving of 5 billion euros

Necessary reorganization following the merger will cost an estimated 2 billion euros, but the bank is looking at cost savings of 5 billion euros by reducing the number of branches to 1,200, a fall of 22 percent. This compares to Deutsche bank, which has just fewer than 1,000 branches in Germany alone.

A Commerzbank spokesman offered the opinion that the takeover, and the subsequent restructuring, will be instrumental in giving a rise in share earnings, to be seen at first in 2011.

Half of all cost saving is expected to result from reduced personnel expenses, and the company website offers the insight that Commerzbank is looking to a return on equity, after tax, of around 15 percent in the mid term.