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Deutsche-Dresdner Merger
Fiasco Raises Concerns

By Paul Geitner   Associated Press
BERLIN — The head of Dresdner Bank announced his resignation Thursday while Deutsche Bank's chairman clung to his job despite a chorus of criticism over the embarrassing collapse of their month-old deal to create one of the world's largest banks.

Dresdner chairman Bernhard Walter informed his supervisory board of his intention to step down by the end of the month, the bank said in a statement. Bernd Fahrholz, Dresdner's management board member in charge of corporate customers and investment banking, will replace him.

In the statement, Walter said "a historic chance was wasted" with the merger's failure, but blamed Deutsche Bank for making a "balanced integration" impossible.

Earlier Thursday, Deutsche Bank chairman Rolf-Ernst Breuer insisted he would not step down and sought to defend himself against criticism that he mishandled the $30 billion deal in a rush to expand.

"My colleagues and I were and still are convinced of the value" the merger would have created, Breuer said, while acknowledging that Deutsche had failed to convince customers, employees and especially investors, who had sent the bank's stock plunging over the past month.

Breuer and Walter were to be co-chief executive officers of the new bank. Walter, 58, was to have a five-year contract, with Breuer, 62, expected to retire in 2002.

In the wake of the collapsed talks, Breuer said he "can't rule out" a hostile takeover bid for his own bank. But while rumors were already floating that U.S.-based Citigroup could launch a takeover offer for Dresdner, names of potential bidders for Deutsche Bank, Germany's biggest, have yet to surface.

"They're still a huge bank," said Bridget Gandy, senior director of financial institutions at Fitch IBCA in London. "Deutsche is more likely to be predator than prey."

Dresdner Bank called off the deal Wednesday, accusing Deutsche of violating the terms of their month-old agreement by trying to sell off Dresdner's investment banking arm, Dresdner Kleinwort Benson.

But others noted the prospects for the merger had failed from the start to impress investors, sending both banks' share prices down more than 20 percent over the past month. While the deal would have created a $1.2 trillion powerhouse, analysts said the banks overlapped in too many areas to produce enough savings.

"The stock market had clearly given its verdict on the merger plans of Deutsche and Dresdner banks in recent weeks — and they were right," said Rainer Bruederle, a leading member of the pro-business Free Democrats in parliament.

The debacle raises "doubts, to put it mildly, about the ability of some boards to make strategic judgments," he said.

Chancellor Gerhard Schroeder, who had supported the merger, expressed dismay at the embarrassing collapse Wednesday night. "I've seen more mature performances in the corporate sector," he said.

Investors initially applauded the news of the deal's dissolution, pushing shares of both banks up more than 4 percent Wednesday. But shares of both drifted downward Thursday, with Deutsche Bank down 2.51 euros to 77.50 euros ($74.25) and Dresdner down .87 euro to 48.13 euros ($46.10)

At a news conference Thursday to discuss Deutsche Bank's 1999 results, Breuer said Deutsche would not attempt a hostile takeover of Dresdner and also isn't looking for another merger partner.

"Our earnings (performance) last year shows that we aren't under any pressure," Breuer said.

Deutsche Bank said it posted 2.57 billion euros ($2.47 billion) in net profit last year, up almost 50 percent from 1998, confirming preliminary earnings data released in February.

Without providing an exact figure, Deutsche said Wednesday it posted a 50 percent rise in pretax profit in the first quarter of 2000, but Breuer conceded Thursday it wouldn't be able to maintain that growth over the full year.

Dresdner, Germany's No. 3 bank, makes a similar presentation on Friday, and was expected to face questions about its future strategy amid speculation that it had now become a takeover target.

Breuer said Deutsche would not be giving up its domestic retail business, as had been foreseen under the merger. Insurance giant Allianz, a major stakeholder in both banks, would have taken a significant stake in Deutsche Bank 24 as a means of distributing insurance under the merger plans.

Breuer all but ruled out the possibility that Deutsche Bank and Dresdner Bank could cooperate on a smaller scale in the future. "One should never say never, but this is most likely out" of the question, Breuer said.

Before announcing the deal March 9, the two had held talks on a partial merger of their retail activities — talks which also broke off suddenly last fall.

"When one gets engaged twice ... one's not likely to do it a third time," Breuer said.

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