German banks confirm link-up "exploratory" talks

Dresdner Bank, Germany’s third largest bank, and its rival Commerzbank yesterday issued a joint statement confirming they have had preliminary talks about a link-up.

The banks said: “The boards of Commerzbank and Dresdner Bank confirm that they are in discussions about a range of possible business combinations.” But Dresdner and Commerzbank added that “the discussions are at a very early stage,” and said there would be no further public statements about the talks in the short-term. The statement follows a meeting this weekend between Bernd Farholz, Dresdner’s chairman, and his counterpart at Commerzbank, Martin Kohlhaussen.

One banker familiar with the meeting, which took place on Saturday, stressed that the talks had been a first exploratory step. It was “an exchange of thoughts – there were no formal negotiations,” he said. Commerzbank is understood to have made the initial approach and Dresdner is said to have been receptive but is insisting that any deal must fit its strategy of becoming a “focused European advisory bank.”

The starting point for the talks has been a review of how the two banks’ branch networks and technology platforms might be integrated in the hope of cutting costs. “But all possible options were under discussion – including a full merger,” a banker close to the talks said. The gap in the two banks’ valuations is expected to provide a difficult hurdle to overcome.

Commerzbank, Germany’s fourth largest bank has been the focus of intense merger speculation since Cobra, the German unit of Dutch based Rebon, acquired a 17 percent controlling stake, and urged it to find a foreign partner. It has held exploratory talks with Banco Santander Central Hispano, one of its shareholders.

One source said that Commerzbank had “stretched out their hands to the other side of the street.” Dresdner Bank has to respond because “pressure is growing for further consolidation in German banking.” But Dresdner is determined that any form of partnership or cooperation with its Frankfurt rival should bolster its new strategy of becoming a focused advisory bank. “That is a core concern to them,” the source said. The strategy, which has been broadly welcomed by analysts, builds on Dresdner’s strengths in investment banking, private clients and asset management. It was outlined by Mr Farholz following the collapse of the merger with Deutsche Bank, which left Dresdner severely weakened. Mr Farholz insisted then the bank would be well equipped to survive on its own.

Originally, the weekend talks were to have involved management board level delegations from both banks. But amid a frenzy of press speculation on Friday Dresdner threatened to pull out unless the meeting was restructured as a “low key” preliminary discussion of several possible options. Hansgeorg Hofmann, the head of Cobra, insisted yesterday he had not been involved in any of the discussions between the banks although he had talked to Mr Kohlhaussen last week. He said Cobra remained supportive of Commerzbank’s efforts to find a solution to the pressure for banking consolidation in Germany. Reuters