More than two centuries of British banking history is set to disappear along with more than 1,000 jobs after a deal last night that saw Allianz, the German insurer, sell its Dresdner Bank subsidiary to Commerzbank.

The deal is worth €9.8 billion (£7.89 billion), but there is a provision that the vendor must repay up to €975 million, which would go into a special trust, if write-offs are required because of further bad loans on the Dresdner balance sheet.

One of the first victims of the deal will be the loss-making investment bank arm, Dresdner Kleinwort, one of the most historic names in banking, where about half the 2,500-strong workforce could lose their jobs. There is considerable overlap with Commerzbank’s operations in London, and the main attraction to the buyer is Dresdner’s German retail operation. Kleinwort has been heavily hit, along with other big investment banks, by losses from the US housing market.

The new owner is likely to focus at the investment bank on debt and equity derivatives and it has little interest in areas such as mergers and acquisitions, proprietary trading and corporate broking. Sources close to the bank indicated that as many as 1,000 jobs might go from Dresdner Kleinwort. Commerzbank has told German banking unions that it will cut 9,000 full-time jobs.

Commerzbank has cut back heavily on its own loss-making investment banking side. It is expected that the Kleinwort name will disappear as part of the eventual downsizing.

Allianz’s supervisory board approved the deal, which had been widely expected, last night. Michael Diekmann, chief executive, said: “This is a milestone in the consolidation of the German banking sector. With this step, we selected the best solution for Dresdner Bank. Together, the two banks will be the German market leader for retail clients and medium-sized companies.”

Commerzbank believes that putting the two banks together will offer cost savings of €5 billion by 2012. Allianz will emerge as Commerzbank’s biggest shareholder, with almost 30 per cent.

The deal is complex. Commerzbank is buying 60.2 per cent of Dresdner, in exchange for 163.5 million new shares, or about 18 per cent of its enlarged share capital. At current market values, these are worth €3.4 billion. Allianz will get another €2.5 billion in cash, from which the €975 million will come to cover later bad debts in Dresdner.

Commerzbank will also transfer its Cominvest fund manager, valued at €700 million, to Allianz. When the banks are merged, the vendor will receive further shares in Commerzbank worth €3.2 billion. The deal should be completed by the end of next year.

Farewell to a City name

The extinction of the Kleinwort name marks the end for another of the City’s totemic brands, and one of the few names surviving from before Big Bang in 1986. The bank dates back to 1786 and Hinrich Kleinwort, who set up a business in Denmark to finance trade with Britain. Since then there have been Kleinworts in many businesses around the City.

Hinrich’s son Alexander Friedrich set up a cigar business in Cuba, and in 1855 moved permanently to London. By coincidence, it was in 1786 that Robert Benson, a Quaker, created the broker Rathbone & Benson. In 1961 the two companies were brought together to create a new force in broking, Kleinwort Benson Lonsdale.

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