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The Yellow and the Green

Commerzbank's Merger Crisis

By Christoph Pauly

In the midst of a major financial downturn, Martin Blessing, CEO of Commerzbank, is charged with managing one of the biggest mergers in German banking history -- despite massive losses and ongoing risks. But there's no turning back, either for Blessing or for Germany's political establishment.

The chancellor's favorite banker looks small in his dark-blue suit and white shirt, especially against a huge green-and-yellow screen. In the pale light of the Dresdner Bank training center, he looks older than he actually is.

Gone is the youthful charm that distinguished Martin Blessing, 45, only a few months ago. An oblong scar on his face from a childhood bicycle accident seems more pronounced. Like Harry Potter's famous scar, Blessing's vanishes on good days.

But the sorcerer's apprentice of German banking has been under near-constant pressure since Aug. 31, 2008, shortly before the bankruptcy of US investment bank Lehman Brothers plunged the financial markets into chaos. That was when Blessing, in his job for less than four months, announced a Commerzbank takeover of its rival, Dresdner Bank. Since then he has had to declare billions in losses and accept bailout protection, twice, from the German government.

The balance sheets of both banks still have €55 billion ($73 billion) in toxic securities, and if the European Commission had its way in Brussels, it would declare the entire operation a case for restructuring -- i.e., a "bad bank." Now, during the world's largest financial crisis since 1929, Blessing is expected to navigate one of the biggest mergers in German banking history.

As is often the case on Tuesdays, Blessing has worked a 12-hour day, including two board meetings, by the time he reaches Dresdner Bank's training center near Frankfurt to address about 150 young managers. A Dresdner sales manager says her customers would be displeased if the name of their bank were to disappear. Wouldn't it be better, she says, to allow both banks -- represented by their trademark colors on the screen behind Blessing, green and yellow -- to coexist?

But under the terms of the merger, the name of her 137-year-old Dresdner Bank will disappear by the end of next year. Even the weather forecast on two popular German TV shows, "heute-journal" and "Tagesthemen," is no longer introduced by its longtime sponsor's green umbrella, but by an umbrella in Commerzbank yellow.

Blessing understands the skepticism, and the emotions, associated with the takeover. The upstart Commerzbank, traditionally the third largest of Germany's major private banks, is swallowing Dresdner, once the proud number two, behind Deutsche Bank.

Chancellor Angela Merkel and Finance Minister Peer Steinbrück have pledged €33.2 billion ($44 billion) to make sure the experiment succeeds. Fifteen billion euros of that will go to government-backed loan guarantees for the bank's bonds, which would otherwise be almost impossible to sell to private investors. With the remaining €18.2 billion, the federal government will acquire silent partnerships and shares in the bank.

Berlin's coalition government, for once, has agreed on something -- that the merger must not fail. It's expected to result in a second major German bank, one devoted primarily to doing business with small and mid-sized companies. The government is also prepared to inject more money -- also running into the double-digit billions -- to isolate the risks on the inflated balance sheet of the new Commerzbank.

But is Blessing the right man for the job? This ambitious careerist, a former McKinsey consultant whose critics dismiss him as a technocrat, is known internally as Blessing the Third, because his grandfather led Germany's central bank and his father was on the board of Deutsche Bank.

German Finance Minister Peer Steinbrück appeared with Blessing on a recent TV chat show. He dominated the young bank chief with talkative arguments that seemed to make clear just who would call the shots at Commerzbank -- even though the government's acquisition of a 25-percent stake in the merged entity wasn't (and still isn't) complete. Blessing seemed uncharacteristically nervous, tensing up when it was time to show the viewing public the right mix of humility and competence. "We bankers have made mistakes," he said, but it sounded less than convincing.

So what mistakes did Blessing himself make? Didn't he fatally underestimate the risks hidden in Dresdner's accounts? Blessing brushes aside such questions. "You can only make decisions based on the information at your disposal at that particular time," he says.

If he has any self-doubt, he hasn't shown it -- not on the talk show and certainly not when speaking to the young managers at Dresdner Bank. Blessing is in his element at this event. His concern for the audience's ambivalent feelings never extends beyond simple acknowledgment.

"We have decided to call the bank Commerzbank," he says, a bit stiffly. Dresdner Bank's 22,000 employees know what that means: There will be nothing left of their bank. Senior management, the new company's business model and even the computer systems will come from Commerzbank. "Commerzbank is the blueprint," Blessing likes to say privately.

The only compromise he seems willing to make relates to the logo. The Commerzbank logo, a stylized leaf that employees liken to a head of cauliflower, and the Dresdner logo, which looks like a triangular eye, are up for debate, says Blessing.

But there are more pressing problems.

"You are steamrolling Dresdner Bank," said Bernd Pischetsrieder, a member of the Dresdner supervisory board who once led automakers like BMW and Volkswagen. He warned the takeover target that it faces an "invasion" and urged Blessing to consider the so-called soft factors associated with the merger, meaning emotions. Ignoring those, he said, could jeopardize the endeavor.

He said when merged automakers like Porsche and VW have their differences, the consequences are minor, because people still buy cars. But clashing corporate cultures can be damaging for banks. "It drives away customers," he said.

Blessing intends to show his predecessors in the industry just how things are done -- since banking mergers routinely fail. He also wants to settle scores with some old adversaries at Dresdner, which once dealt him the only painful defeats of his career.