Commerzbank outlined its plans to cut 9,000 jobs and shrink investment bank Dresdner Kleinwort to a rump after buying Dresdner Bank, but investors were unhappy about the $14.5 billion deal.
Allianz is selling the bank in two tranches to create a stronger German number two behind Deutsche Bank.
It is a deal that will trigger one of the biggest rounds of job cuts in banking since the markets crisis began.
It is also an admission from Allianz -- after seven years and billions in losses -- that it does not need its own bank in order to sell insurance to bank customers.
Investors were skeptical that Commerzbank Chief Executive Martin Blessing can make the deal work.
Dieter Ewald, a fund manager with Frankfurt Trust, which owns shares in Commerzbank said: "I think this is a real heavy-lifting exercise for Commerzbank and they might not make it."
Dirk Becker, an analyst with Landsbanki Kepler said: "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. "But it is a huge integration. We will see in half a year that something will go wrong."
Commerzbank shares tumbled over 10 percent, lopping more than $2 billion off its market value, after it said it would buy 60 percent of Dresdner now and the rest in 2009.
The new group faces several challenges. For one, Commerzbank needs shareholders to pitch in the money to buy the remaining stake in Dresdner.
Should they say no, as they have to similar requests in the past, Blessing said it would take longer to wrap up a deal and reach the promised cost savings of almost 2 billion euros.
Much of the 9.8 billion euro 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.
On Monday, the new owner outlined a blueprint to cut costs by slashing the combined group's 67,000 staff.
More than half the savings will come from Dresdner Kleinwort, the struggling investment bank which has been further hobbled by the credit crunch.
Detailing plans to chop proprietary trading, leveraged loans and other key investment banking work, Commerzbank chief 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.
Alongside the staff who lose their jobs, the Dresdner brand will go, marking the disappearance of one of the best-known names in the City of London -- merchant bank Kleinwort Benson.
It draws a line under an unhappy chapter for Allianz.
Allianz deal broker Paul Achleitner and other architects of the original 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.
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 after it bought Dresdner for 24 billion euros in 2001.
"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 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, and secure its position at the tail end of Europe's top 20 banks.