Dresdner Suddenly Calls Off Planned Bank Merger

April 5, 2000

A month ago Dresdner Bank and Deutsche Bank (DB) announced plans to merge. With considerable help from their mutual shareholder, insurer Allianz AG, the two German banks seemed set to become the world’s largest bank, and the first private financial enterprise to have over $1 trillion in assets.

But this afternoon the proposal appeared to come to a screeching halt with Dresdner’s unexpected announcement that it was pulling out of the merger agreement. Amid all the speculation shares in the two banks and Allianz were suspended from trading on the Frankfurt stock exchange.

According to reports, plans by DB sell off all or part of Dresdner’s investment banking division, Dresdner Kleinwort Benson, was given as the immediate cause of the collapse of the merger talks. But, following the recent departure of two department heads analysts were also speculating that a number of senior managers at both banks were unhappy with the deal, and its implications, as were German Unions Dresdner management indicated they felt that they were being pushed around by DB in what was supposed to be a merger of equals.

The AP quoted a Dresdner announcement as saying, “In both word and spirit, Deutsche Bank rejected a balanced integration of Dresdner Kleinwort Benson,” and Reuters quoted the same statement as saying, “Through its behavior Deutsche bank withdrew the basis for trust.” Neither Deutsche Bank nor Allianz have as yet made comments on the announcement, but were expected to do so.

Some commentators pointed to the fact that many DB shareholders felt Allianz had gained too much in the deal in exchange for reducing its shareholdings, as it was due to receive an initial 49 percent of DB’s retail banking operations.

Other speculation repeated rumors that Citibank had made a more favorable offer to Dresdner management, but as both banks refused to comment on the rumors, it’s unclear if this is actually the case. Finally, the negative reaction of the German Stock Market to the original announcement (DB’s shares are down 19 percent, Dresdner’s 18 percent) was cited by many analysts as the overall reason for the collapse.

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