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  Germany's Merging Banks: Will Bigger but Fewer Mean Better?

Germany's Merging Banks Will Bigger but Fewer Mean Better?

By Frank Dohmen and Christoph Pauly

Part 3: Blessing in Disguise?

Then Martin Blessing, 45, the more-casual new head of Commerzbank, came on the scene. He acquired Dresdner Bank in two stages from Allianz CEO Michael Diekmann for approximately €9.8 billion ($14.2 billion). In doing so, he created the new top player in the German market for consumer and small- to medium-sized business banking.

Or at least that would have been the outcome, if Ackermann had not reacted. Deutsche Bank had been negotiating with Deutsche Post for weeks, but the talks did not really get going until Commerzbank's coup had become known.

"We, as Deutsche Bank, are obligated to remain the largest bank in Germany," Ackermann said last Friday. For this reason, the negotiations -- which had been dragging on for weeks -- suddenly got going very quickly.

Ackermann can now expand his consumer business with the help of Postbank. In the first stage of the deal, Deutsche Bank will acquire close to 30 percent of Postbank's shares for about €2.8 billion, which is still a respectable price. Having negotiated an option to do so, Deutsche Bank can also acquire more shares at a later date.

At the same time, Deutsche Bank agreed to a so-called two-brand strategy. At least initially, Postbank will continue to exist, using its blue-and-yellow logo and extensive network of branches.

In other words, for now at least, not much is going to change -- not for customers, employees or bankers. For the time being, Deutsche Bank will use the Postbank branches as merely a distribution channel for its products.

Finding Synergies

At this point, the principles of the cooperative venture have only been sketched out in an outline agreement. A cooperative committee has been set up to help foster Postbank's collaboration with its new major shareholder, which is currently very loosely structured.

Deutsche Bank is especially interested in selling the services of DWS, Deutsche Bank's investment-fund subsidiary, to Postbank's 14.2 million customers. It would also like to use training sessions to convince Postbank employees of the attractions of its products as well as to offer new pension products through this new distribution channel.

In return, Postbank can offer Deutsche Bank a modern processing platform for its consumer business. Deutsche Bank's own infrastructure is already considered to be outdated. In fact, it has already outsourced the processing of payment transactions to Postbank. To cut costs, mortgage loans could also be processed through Postbank's loan-processing unit.

Ackermann, whose contract expires in 2010, will leave the difficult integration of his new acquisition to his successor. Whoever that is will be charged with acquiring the rest of Postbank and its most valuable asset: customer deposits worth €90 billion ($131 billion). "We can collect €1.5 billion ($2.2 billion) with a single fixed-deposit campaign," one of the members of Postbank's executive board boasts.

Winners & Losers

In any event, Deutsche Bank has more than doubled its number of private consumers in one fell swoop. Commerzbank -- defeated once again -- is back in second place. But its CEO seems relaxed enough. "I welcome every step toward consolidation in Germany," says Blessing.

Even Profumo, the Italian bank executive, is pleased about the two takeovers. "A market with fewer competitors is more profitable," he says.

But what Profumo fails to mention is that customers and employees are paying a price for the consolidation. The number of jobs will decline; 9,000 jobs are likely to be lost in the Commerzbank-Dresdner Bank merger alone.

And, at the same time, prices are rising. Italy is a case in point. Consumers there pay Europe's highest fees for bank services -- significantly more than people do in poorly consolidated Germany.

Translated from the German by Christopher Sultan