Deutsche Bank's plan to spin off its retail banking operation after a merger with Dresdner Bank highlights a pair of trends among financial institutions, which are increasingly segmenting customer bases at the same time their business lines are converging.

If the deal goes as planned, it would set the stage for an insurer, Allianz, to take a powerful role in the eventual retail spin-off, which could be partially floated through an initial public offering.

The deal would also enable Deutsche to follow in the footsteps of several big U.S. banks that have moved to part from retail operations. This trend is expected to accelerate as Internet banking gathers speed and puts more pricing and customer acquisition pressure on banks' retail activities.

"Banks have a long history of being all things to all men and getting mediocre returns, but splitting up and narrowing the focus in products and markets will be the hallmark of the future," said Charles Wendel, a banking analyst at New York-based Financial Institutions Consulting.

"They are increasingly looking at where they are making money and getting out of businesses where they don't have the right scale or the right culture."

Analysts noted that banks' efforts to sharpen their focus has been gaining momentum since the former Bankers Trust Corp., now part of Deutsche Bank, decided to sell off its retail banking operations in the early 1980s. Though most U.S. banks are still deeply involved in both retail and commercial banking, some, like State Street Corp., have already quit commercial banking, opting to invest in securities processing and asset management instead.

"There are two fundamental reasons why banks would consider a spin-out," said James McCormick, president of First Manhattan Consulting Group. "One is to focus management attention on the businesses that are most profitable, and the other is because you think that in shareholder terms, the parts will be worth more than the whole."

Deutsche Bank board members confirmed on Wednesday that the banks have agreed in principle on a merger that would create a $1.2 trillion-asset institution, the second-biggest bank in the world after a planned merger between Fuji Bank Ltd., Dai-ichi Kangyo Bank Ltd. and Industrial Bank of Japan, Ltd.

As part of the merger plan, Deutsche and Dresdner would concentrate on wholesale and investment banking. The two banks' low-profit retail operations would be hived off into a separate, publicly traded entity in which the big German insurance company Allianz would hold a large minority stake.

Allianz has indicated it may gradually acquire a majority stake in the retail unit and use it to expand its own distribution of insurance and retail investment funds.

The merger is expected to result in the loss of about 14,000 jobs and produce both considerable savings and much larger economies of scale.

Analysts said it remains an open question how U.S. banks might follow suit, though they suggested that patterns of divestment among banks over the last several years suggest that banks would opt to sell off less profitable units to better-positioned institutions rather than convert them into separately listed entities.

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