Commerzbank to buy Dresdner for $14.5 billion

FRANKFURT (Reuters) - COMMERZBANK (CBK.XE) plans to cut almost 2 billion euros ($3 billion) in costs by slashing 9,000 jobs and shrinking investment bank Dresdner Kleinwort after buying Dresdner Bank, but investors appeared unconvinced by the deal.

Commerzbank will buy its competitor from Allianz for $14.5 billion in two steps, taking 60 percent this year and the rest in 2009 to create a rival to flagship Deutsche Bank in Europe's biggest economy.

Much of the purchase price will be paid to Allianz in the form of shares, leaving Europe's biggest insurer with a stake of almost 30 percent in the new Commerzbank.

The deal puts a price tag of 9.8 billion euros on Dresdner -- a fraction of the 24 billion euros Allianz paid for it near the height of the dot-com bubble in 2001.

But analysts and insiders were skeptical about whether the pairing of what many see as two mediocre performers could create a financial champion.

Shares in Commerzbank tumbled by almost 7 percent, making them the steepest decliner among German blue chips while Allianz slipped slightly.

"It is good for Allianz. In the seven years they have owned Dresdner they have learned that they don't have a clue about running a bank," said Dirk Becker, an analyst with Landsbanki Kepler.

"But it is a huge integration. We will see in half a year that something will go wrong."

DZ Bank analyst Matthias Duerr wrote: "On a first glance we don't like the transaction at all. The acquisition of Dresdner is more expensive than expected."

On Monday, the new owner outlined a blueprint to cut costs, with more than half the savings to come from Dresdner Kleinwort, the straggling investment bank which has been further hobbled by the credit crunch.

JOBS GLOOM

About 2,500 of the 9,000 jobs that will be cut are set to be lost outside Germany, much of those at Dresdner Kleinwort. The new group will have 67,000 staff before the cuts.

Outlining plans to slash proprietary trading, leveraged loans and other key investment banking work, Commerzbank Chief Executive Martin Blessing said: "This is familiar territory for us."

Commerzbank closed its own investment bank. Many now expect the winding up of the accident-prone Dresdner Kleinwort, which helped Allianz tot up $5 billion of writedowns during the credit crunch.

The sale will give the new Commerzbank 11 million retail customers in Germany, a market where margins are thin thanks to the dominance of state not-for-profit lenders.

It will also allow Allianz to end an unhappy marriage that tried to match investment bankers with insurance salesmen.

Allianz board member Paul Achleitner and other architects of the Dresdner takeover had hoped to sell bank accounts to Allianz customers as well as products such as car insurance at bank branches.

Last June, Reuters reported that Allianz had begun to consider its options for Dresdner. The resulting jump in the insurer's share price reflected the degree of investor frustration with the botched takeover.

But finding a buyer has not been easy, mostly because of Dresdner's investment bank -- a business, said one insider, which Allianz had never intended to keep.

"It was clear from the start to Allianz that they did not want to keep the investment bank," this person said. "But when the time was right to sell it -- at the top of the investment banking boom in late 2006 -- they fell asleep at the wheel."

The sale will beef up Commerzbank. Despite being one of the country's biggest lenders, it is still a lightweight by European standards, with a market value of about 13 billion euros -- less than half that of Frankfurt neighbor Deutsche Bank.

Allianz was advised by Goldman Sachs, Shearman Sterling and Ernst & Young. Leonardo & Co gave a fairness opinion for Allianz and Rothschild for Dresdner Bank.

(Editing by Erica Billingham)