September 2, 2008

City Braced for Fresh Round of Banking Job Cuts

By Sean Farrell

Commerzbank plans to shed 1,200 jobs in London as it agrees to buy out Dresdner for EUR 8.8bn

THE CITY is bracing itself for a further redundancies as Commerzbank prepares to cut more than half its workforce at Dresdner Kleinwort's London operation in its takeover of its German rival.

Commerzbank plans to slash up to 1,200 London jobs at Dresdner in businesses such as trading as well as in support functions. About 2,000 of Dresdner Kleinwort's 5,500 staff are employed in London.

Proprietary trading will be the first casualty, with the division set to be shut down by the risk-averse bosses of Commerzbank, who have revived the once-troubled lender by scaling back investment banking and focusing on retail and commercial banking. No decision has been made about Dresdner's equities business, which includes sales, trading and research.

City job cuts, however, have been relatively muted despite the credit crunch and the worsening economy. Financial institutions have cut more than 100,000 jobs worldwide since the start of the credit crisis but London job losses at individual banks have been mostly in the hundreds rather than the thousands.

The Centre for Economics & Business Research has predicted a fall of about 20,000 in financial services jobs this year and next as banks slash costs to offset the effects of massive write-downs and frozen markets. But analysts at JP Morgan have predicted up to 40,000 redundancies at financial firms, which would have a huge effect on the economy. Britain relies disproportionately on the earnings of workers in the financial services sector for tax and spending on services.

Jill Andrew, a consultant in the employment department at the law firm Dawson's, said: "Generally, I don't think we have seen the floodgates open yet. The problem is that most bankers do not have transferable skills and so job opportunities outside the City are very thin on the ground."

City sentiment turned negative in the first half of this year, with the majority of hiring managers believing the sector would be weaker in the next year, according to the recruiters Morgan McKinley. Rob Thesiger, the chief executive of Morgan McKinley's parent company, Imprint, said: "There is no doubt that uncertainty within London's financial services industry and, in turn, the City jobs market continues." He added that although hiring had slowed down in certain businesses there were still shortages of skills in some areas.

Commerzbank agreed to pay 8.8bn (7.13bn) to Allianz, Germany's biggest insurer and Dresdner's owner, and will cut 9,000 of the combined group's 67,000 staff, but no compulsory redundancies will be made before 2011.

Dresdner Kleinwort's business in the City will be merged into Commerzbank's corporates and markets division, which focuses on doing business for German clients. Dresdner Kleinwort had tried to compete as an international investment bank, acting as a corporate broker for companies in the UK. It recently jointly underwrote Bradford & Bingley's failed 455m rights issue.

The first senior casualty of the deal was announced yesterday: Stefan Jentzsch, Dresdner Kleinwort's chief executive, is to step down at the end of the first phase of the acquisition early next year.

Dresdner Kleinwort has had a rocky ride since Dresdner Bank bought Kleinwort Benson, one of the City's oldest merchant banks, in 1995. It bought Wasserstein Perella, the merger advice firm headed by the US dealmaker Bruce Wasserstein, in 2000. But after adding Mr Wasserstein's name to the bank he quit the following year. In 2001, Allianz bought Dresdner Bank but its hopes for combining banking and insurance never paid off.

The 222-year-old Kleinwort Benson name could survive in the form of Dresdner Kleinwort's private banking operation. Commerzbank has not yet decided what to do with that business.

The deal proved unpopular yesterday with Commerzbank's investors, who sent the bank's shares down 10 per cent.

Outlook, page 41

Originally published by By Sean Farrell Financial Editor.

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