Commerzbank buy threatens Dresdner Kleinwort future

By Douwe Miedema and Olesya Dmitracova

LONDON (Reuters) - The future of investment bank Dresdner Kleinwort -- whose Kleinwort tag dates back to the 18th Century -- hangs in the balance now that Germany's Allianz plans to sell control to Commerzbank.

Dresdner Bank's retail network of 1,074 branch offices in Germany is seen as the attraction for Commerzbank -- Germany's third-biggest sector player.

It may be disinclined to revive the sickly investment banking unit.

"My view is that the investment bank, or Dresdner Kleinwort, would be reshaped to make sure it fits into Commerzbank's group strategy. It could be scaled back," said Michael Steinbarth from the financial institutions group at Fitch Ratings.

Sources with direct knowledge of the matter told Reuters on Friday that insurer Allianz is set to sell Dresdner in a deal valued at around 9 billion euros ($13.27 billion) that may be announced as early as this weekend.

Commerzbank would take a 51 percent stake in Dresdner and buy the rest later, the sources said. That would dissolve a union that has brought Allianz little luck ever since buying the bank for 24 billion euros seven years ago.

Dresdner Kleinwort -- whose roots go back to 1786 when Hinrich Kleinwort set up business in Denmark to finance trade with England -- has not been doing well.

In mergers and acquisitions it is in the 31st position so far this year, down from the 17th place in 2005, according to Thomson Reuters data. The picture is similar in debt capital markets and syndicated loans.

Only in equity capital markets is it heading in the right direction, standing in 16th position up from 22nd.

PROBLEM CHILD

Commerzbank took a knife to its own loss-making investment bank in 2004, cutting jobs and reducing the company's pan-European brokerage and research and closing proprietary trading.

Its remaining investment banking operations are now negligible.

The investment bank -- once labeled a problem child by the group's former chairman Klaus-Peter Mueller -- notched up accumulated losses of more than 650 million euros from 2002 to 2004, by some calculations.

UBS analysts see upside potential from the deal for Commerzbank "if management gets the integration and "rightsizing" right, particularly in investment banking", they said in a note on Thursday on the possible purchase.

"Should Commerzbank acquire all of Dresdner, then you'd assume that parts of the investment bank will be meaningfully restructured," said Matthew Clark, an analyst at KBW.