Germany's Tricky Commerzbank Merger

The government-backed takeover of No. 2 German bank Dresdner by its smaller rival seemed like a good idea until the financial crisis worsened

By Christoph Pauly

The chancellor's favorite banker looks small in his dark-blue suit and white shirt, especially against a huge green-and-yellow screen. In the pale light of the Dresdner Bank training center, he looks older than he actually is.

Gone is the youthful charm that distinguished Martin Blessing, 45, only a few months ago. An oblong scar on his face from a childhood bicycle accident seems more pronounced. Like Harry Potter's famous scar, Blessing's vanishes on good days.

But the sorcerer's apprentice of German banking has been under near-constant pressure since Aug. 31, 2008, shortly before the bankruptcy of US investment bank Lehman Brothers plunged the financial markets into chaos. That was when Blessing, in his job for less than four months, announced a Commerzbank (CBKG.DE) takeover of its rival, Dresdner Bank . Since then he has had to declare billions in losses and accept bailout protection, twice, from the German government.

The balance sheets of both banks still have €55 billion ($73 billion) in toxic securities, and if the European Commission had its way in Brussels, it would declare the entire operation a case for restructuring—i.e., a "bad bank." Now, during the world's largest financial crisis since 1929, Blessing is expected to navigate one of the biggest mergers in German banking history.

As is often the case on Tuesdays, Blessing has worked a 12-hour day, including two board meetings, by the time he reaches Dresdner Bank's training center near Frankfurt to address about 150 young managers. A Dresdner sales manager says her customers would be displeased if the name of their bank were to disappear. Wouldn't it be better, she says, to allow both banks—represented by their trademark colors on the screen behind Blessing, green and yellow—to coexist?

But under the terms of the merger, the name of her 137-year-old Dresdner Bank will disappear by the end of next year. Even the weather forecast on two popular German TV shows, "heute-journal" and "Tagesthemen," is no longer introduced by its longtime sponsor's green umbrella, but by an umbrella in Commerzbank yellow.

Blessing understands the skepticism, and the emotions, associated with the takeover. The upstart Commerzbank, traditionally the third largest of Germany's major private banks, is swallowing Dresdner, once the proud number two, behind Deutsche Bank.

Chancellor Angela Merkel and Finance Minister Peer Steinbrück have pledged €33.2 billion ($44 billion) to make sure the experiment succeeds. Fifteen billion euros of that will go to government-backed loan guarantees for the bank's bonds, which would otherwise be almost impossible to sell to private investors. With the remaining €18.2 billion, the federal government will acquire silent partnerships and shares in the bank.

Berlin's coalition government, for once, has agreed on something—that the merger must not fail. It's expected to result in a second major German bank, one devoted primarily to doing business with small and mid-sized companies. The government is also prepared to inject more money—also running into the double-digit billions—to isolate the risks on the inflated balance sheet of the new Commerzbank.

But is Blessing the right man for the job? This ambitious careerist, a former McKinsey consultant whose critics dismiss him as a technocrat, is known internally as Blessing the Third, because his grandfather led Germany's central bank and his father was on the board of Deutsche Bank (DB).

German Finance Minister Peer Steinbrück appeared with Blessing on a recent TV chat show. He dominated the young bank chief with talkative arguments that seemed to make clear just who would call the shots at Commerzbank—even though the government's acquisition of a 25-percent stake in the merged entity wasn't (and still isn't) complete.