German banks plan merger of retail operations

Two of Germany's leading banks are in talks aimed at merging their retail operations in a sign that the tremors from global banking consolidation have reached Germany.

The retail businesses of Deutsche Bank and Dresdner Bank, Germany's largest and third largest banks, would be combined in a separate company, operating a unified branch network under a new brand name, in which the two banks would own equal shares.

Dresdner has 6 million customers and 1,400 branches, compared with Deutsche Bank's 1,600 branches. The development reflects the intense pressure on Germany's four leading private sector banks to inject life into their poorly performing retail businesses.

The banks have only about 15 per cent of the country's retail market, with the remainder held by hundreds of regional, publicly owned savings banks.

The high costs of maintaining extensive branch networks have persuaded the private sector banks that they must combine forces to achieve economies of scale. A full merger of the two banks is not being discussed. However, the move is seen as a prelude towards deeper banking consolidation in Germany, which is yet to experience mergers on the scale being attempted in France, Italy and Spain.

German banks are alert to the need to manage capital more efficiently and enhance shareholder returns at a time when competitive pressures are growing in the euro zone. Dresdner stressed that the talks were preliminary and did not yet involve negotiations.

It was prepared to consider a similar tie-up with HypoVereinsbank, Germany's second largest bank, if the talks with Deutsche Bank were inconclusive. "We are working on other options. We are not looking at Deutsche alone," a Dresdner official said.

A retail merger is likely to lead to the loss of about 8,000 jobs, according to local media reports. That is almost certain to spark resistance from trade unions.

A deal would also need the approval of Allianz, the largest German insurer. Allianz has a 22 per cent stake in Dresdner Bank, a 17 per cent stake in HypoVereinsbank and about 5 per cent of Deutsche Bank's shares.

Analysts say Dresdner is under pressure to act as it has been slow to follow its rivals in making overseas acquisitions and is yet to demonstrate a clear strategy for independent survival.

A deal with Deutsche Bank would be easier than with others as Deutsche has already spun off its retail business, merging it with an online banking unit. The new business, known as Deutsche Bank 24, is to be launched next week.

Dresdner said it would take "a few weeks" to spin off its own retail unit and that a merger could be completed by the end of the year.