LONDON (CNNfn) - Deutsche Bank and Dresdner Bank on Thursday announced plans for a merger that analysts valued at up to 33 billion euros ($31.6 billion), forming one of the world's largest financial institutions and gearing up to take on the global leaders in investment banking and wealth management.
Analysts said the deal promises to unleash a fresh wave of consolidation among European banks and insurers to confront the competitive threat posed by an enlarged German market leader - which will retain the name Deutsche Bank -- and Allianz, the German insurer that has effectively brokered the transaction.
"This really raises the stakes in European banking consolidation," said Matthew Czepliewicz, an analyst at Salomon Smith Barney in London. He said the enlarged Deutsche, with assets of more than $1.2 trillion and a market value of more than 80 billion euros, was likely to hit the acquisition trail in the United States to strengthen its presence in the global investment banking market.
The deal also promised to accelerate the unraveling of the complex web of shareholdings across German finance and industry, which have slowed restructuring. U.K.-based Vodafone AirTouch's takeover of German mobile-phone rival Mannesmann last month after a bitter, politically-charged battle is an indication that such bonds already have begun to loosen.
Deutsche and Dresdner didn't give financial details of their tie-up, which they billed as a merger of equals, although they said it would take effect from July 1 and refocus the business on investment banking, corporate banking and wealth management. The merged entity is expected to withdraw over time from conventional banking services for individuals.
 The banks' announcement followed two days of intense speculation since the pair said Tuesday that they were in "advanced co-operation talks".
While that comment had sparked big gains in the companies' shares, Deutsche Bank (FDBK) shares slumped 10 percent to 82.9 euros Thursday and Dresdner Bank (FDRB) dropped 7.5 percent to 51.9 euros. Allianz (FALV) shares were 1.3 percent lower at 406 euros.
Analysts were quick to describe the deal as a takeover of Dresdner, which will provide six of the 14 members on the new company's management board.
 The banks said Deutsche shareholders would own 60-64 percent of the merged entity, with Dresdner shareholders taking 36-40 percent. With Dresdner contributing 33 percent of pro forma net earnings and 35 percent of net asset value, analyst Adrian Pilz at Fox-Pitt, Kelton said this means Deutsche could in effect pay a premium of between 15 and 18 percent to acquire Dresdner, Germany's third-largest bank.
Deutsche Chairman Rolf Breuer and his Dresdner counterpart Bernhard Walter will be co-chief executives of the enlarged company. Breuer said the bank will continue to have twin heads after he retires in 2002. While Deutsche provides the name of the new bank, the new bank's corporate logo will feature the green of Dresdner's brand.
"Together we will be the market leader with private and corporate clients, as well as the leading European investment bank," Walter said in a statement.
Backing out of branch banking
The enlarged Deutsche plans to quit German retail banking by selling to Allianz, Europe's second-largest insurer, an initial 49 percent stake in Bank 24, Deutsche's consumer banking arm. That stake will be diluted to about 40 percent by the addition of Dresdner's retail unit, then shares of the retail bank will be listed in a flotation slated to take place in the next three years.
Pilz, who said he expected Allianz to hold a majority stake in Bank 24 after the public offering, added that he believed the merger was instigated by Allianz. Europe's second-largest insurer owns 21.7 percent of Dresdner and has a 5 percent stake in Deutsche. Deutsche and Dresdner held unsuccessful talks last year to merge their retail operations. The three companies plan to reduce their cross-holdings as part of the merger package.
 "The real winner in corporate terms is Allianz," added Czepliewicz, pointing out that the insurer will be able to sell its products through Germany's largest retail bank network, with a market share of around 12 percent.
However, the insurer denied that it planned to follow the "bancassurance" model pursued by rivals such as ING and Fortis of the Netherlands.
"Allianz is not moving into the banking business with the stake in Bank 24," Chief Executive Henning Schulte-Noelle said in a statement.
Nevertheless, its enhanced distribution network could pile pressure on Germany's state-owned savings banks, or landesbanks, which account for 70 percent of the German consumer banking market. European regulators have been seeking to end the government guarantees that have allowed landesbanks to borrow cheaply and outbid the savings rates offered by publicly traded banks such as Deutsche.
Allianz will also acquire DWS, Deutsche's consumer asset management arm, which oversees funds of 94 billion euros. That will lift Allianz's asset portfolio to 720 million euros, placing it in the global top five.
Investment banking 'powerhouse'
The banks said the Deutsche-Dresdner combination will lead to the loss of 16,000 jobs over three years from a current combined workforce of 123,000. The companies said the layoffs would contribute to potential cost savings of 2.9 billion euros a year, some 10 percent of their combined costs. They will take a 3 billion euro charge. Most of the cuts will come from the closure of a third of the banks' 2,800 branches.
Around 1,600 jobs will go from the combined investment banking arm, mainly from the smaller bank's Dresdner Kleinwort Benson (DKB) investment-banking unit. Dresdner Chairman Walter said reports that DKB would be closed were "nonsense", though the long-term fate of the unit remains unclear.
"There's no question that Deutsche will be a powerhouse in fixed-income, foreign exchange and derivatives, though there is still a gap in the United States," said Czepliewicz.
The options for DKB include its integration into the enlarged bank or a sale to another bank.
Fox-Pitt Kelton's Pilz said that adding DKB to Deutsche's present investment banking business won't be enough to propel Deutsche into the global investment banking elite alongside the likes of Merrill Lynch and Goldman Sachs. In that respect, he likened the latest tie-up to Deutsche's purchase of Bankers Trust in 1998, which he said had failed to provide Deutsche Bank with the clout it had hoped to achieve in the mergers and acquisitions sector.
The deal has prompted talk that more consolidation could lie ahead in Germany. Fourth-placed Commerzbank (FCBK) is now reported to be the target of an approach from Britain's HSBC Holdings (HSBA). 
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