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Commerzbank Race for Dresdner Nears Finish

Reuters
Thursday, 28 Aug 2008 | 9:19 PM ET

Commerzbank has entered the final stretch of a race to buy Dresdner Bank from Allianz amid doubts in Beijing that China Development Bank would get its government's permission to bid.

A German deal, which could come as soon as this weekend, would fuse the country's second- and third-biggest banks, creating a group to rival flagship lender Deutsche Bank.

Taking over Dresdner, which analysts estimate to be worth about 9 billion euros (US$13 billion), would give Commerzbank a badly needed leg up in Germany.

Despite being one of the country's biggest lenders it is still a lightweight on the international stage, with a market value of about 13 billion euros -- less than half that of Frankfurt neighbor Deutsche Bank.

In recent days China Development Bank emerged as a would-be rival. But a Beijing-based source close to that bank voiced doubt on Thursday about the idea of an offer from the Chinese.

He said China Development Bank was unlikely to buy Dresdner partly because of new German rules aimed at blocking unwanted foreign investment.

Interest, the source said, has also been curtailed by tense diplomatic relations between Chancellor Angela Merkel and the Chinese government after she met the Dalai Lama, the exiled Tibetan spiritual leader. "Germany is not very friendly towards China," he said.

The advent of a major Chinese player could also raise political hackles in Berlin.

"I am concerned about these developments," said Georg Nuesslein, a conservative member of the German parliamentary economy and technology committee. "If one of our companies has the Chinese Development Bank representing the interests of the non-democratic regime in China then I am concerned about it," he added, although he acknowledged that German law would not block such a takeover.

Were China -- which has lost money on investments in Barclays, Morgan Stanley and Blackstone -- to drop out of the race, Dresdner could be close to pairing off with Commerzbank.

Asleep At The Wheel

Earlier this week, sources close to the matter said Commerzbank was racing to reach agreement on a deal as it prepared to ask its supervisory board to sign off the plans.

Allianz said on Thursday it would call an extraordinary meeting of its supervisory board on Sunday. Its approval would be needed for any spin-off of Dresdner. The Commmerzbank supervisory board will also meet on Sunday, a spokesman said.

Allianz has halted plans to separate Dresdner Bank into retail banking and investment banking units by the end of August, sources familiar with the situation told Reuters.

"This makes clear that the bank is definitely going to be sold," said one of the sources.

A sale would see Allianz escape its unhappy marriage with Dresdner, a deal struck seven years ago. Allianz, once seen as an unshakeable financial powerhouse, is now licking its wounds largely because of Dresdner.

The architects of the Dresdner takeover in 2001 had hoped to sell bank accounts to Allianz customers as well as products such as car insurance over the counter at bank branches.

Instead Dresdner racked up losses of almost 3 billion euros ($4.4 billion) after the merger as cross-selling floundered.

In June last year 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 struggling 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," said the source. "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."

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