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...and in Germany

The fun has begun. Bayerische Vereinsbank and Bayerische Hypobank announced a "merger of equals" on July 21. They broke the log jam that has been stalling jumbo deals in Germany. The speculation that Allianz might push Dresdner Bank and Hypobank together is over, at least for the time being. The focus now is on a possible fusion of the two Frankfurt giants, Dresdner and Commerzbank, although much depends on the personal chemistry at the top.

The Bavarian merger should also put the wind up Germany's state-sector banks, already under attack by German private banks and by Brussels. Their comfortable funding advantage could be eroded by the low-cost retail giant that Bayerische Hypo- und Vereinsbank could become when and if it lays off 7,000 people and closes 335 branches. BHV is a domestic solution. It adds no potential to German banks' ambitions as global players. But it gives Munich more clout as a financial centre and it may add something to German banks' averagely poor return on equity.

Although the merger appeared to come as a surprise, it had been identified to all concerned as "the most likely consolidation structure" by analysts at Westdeutsche Landesbank in research that was published in January.

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