Dresdner To Split Off Investment Bank But Retain Control

Seeking to improve its profitability and competitiveness in Europe, Dresdner Bank AG said Friday that it will separate its investment bank from its commercial bank but retain control of both.

In what it described as an internal "restructuring," Dresdner said the move will free the investment bank Dresdner Kleinwort Benson to pursue a merger or acquisition to help build three target businesses: global equities, global markets, and corporate finance. Dresdner said the changes will help it meet a new return on equity goal of 15%.

Jon K. Hartzell, senior vice president at Dresdner in New York, said the split, along with financial modernization, could open the door for its U.S. team to expand its private equity business.

Mr. Hartzell said an expansion in private equity will require a strong commitment from headquarters in Frankfurt. "There is an issue of capital," he said.

Analysts and bankers agreed it is unlikely that Dresdner will make a substantial push for business in the United States. Its New York-based banking and asset management operation has only 1,300 employees in five offices nationally and ranks below the top 25 in lending, equity and bond underwriting, and merger/acquisition advisory services.

But observers said the split will allow Dresdner Kleinwort Benson to compete more effectively in Europe - the world's hottest market, according to U.S. corporate finance bankers and the place where the lion's share of Dresdner's corporate relationships exist.

In Europe, the bank was No. 7 through the third quarter in equity underwriting. It was third in eurobond underwriting behind Deutsche Bank and ABN Amro, and 15th in M&A advisory, according to Thomson Financial Securities Data.

But Dresdner faces stiff competition in Europe, where U.S. companies such as Goldman Sachs Group Inc., J.P. Morgan & Co. and Morgan Stanley Dean Witter Inc. have been capturing the largest and most prestigious deals.

"I don't see how it can strengthen the investment banking franchise's profitability," said Evangelos Kavouriadis, an analyst at Sanford C. Bernstein. "Europe's not a hidden jewel - the U.S. banks are there and have more of a brand name."

But Richard Barrett, managing director of financial services mergers and acquisitions at Donaldson Lufkin & Jenrette in New York, said the division could eliminate the cultural and organizational differences found in investment and commercial banking.

More important, he said, Kleinwort Benson will be able to provide performance-based compensation packages like those found at competitors.

Dresdner plans to announce a new management structure for the investment bank in the weeks ahead, a spokesman in Frankfurt said.

It has not been decided whether the four business lines that currently make up Dresdner Kleinwort Benson - global markets, global equities, global corporate finance, and global finance - will be altered.

Also, it has not been decided where the entity will have its headquarters. Given Kleinwort Benson's origins, analysts suggest is likely to be in London rather than Frankfurt.

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