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. Last Updated: 07/27/2016

Deutsche Seals Bankers Trust Deal

FRANKFURT, Germany -- Deutsche Bank AG announced Monday the acquisition of Bankers Trust Corp., in a $10.1 billion deal that will create the world's largest financial institution with assets of more than $800 billion.

Deutsche Bank has offered Bankers Trust shareholders $93 a share to seal one of the largest takeovers of a U.S. financial institution by a foreign bank. The boards of both banks approved the offer Sunday.

The deal merging Germany's largest bank, with assets of $675 billion, with Bankers Trust, the eighth-largest U.S. bank with $156 billion in assets, is expected to be closed by next May.

The combined bank would surpass both the current No. 1 UBS AG of Switzerland and the recently formed Citigroup Inc.

The merger will result in 5,500 layoffs, mostly in New York and London, Deutsche Bank chairman Wolf Breuer said during a news conference with Bankers Trust chairman Frank Newman. He said not all of the lost jobs would be at Bankers Trust.

Deutsche Bank said the deal would be financed partly with a 4 billion Deutsche mark ($2.35 billion) capital increase, and a one-time 1.7 billion-mark restructuring charge for personnel.

Breuer said the restructuring charge will affect Deutsche Bank's earnings, but he did not say during which quarter the charge would be made.

Deutsche Bank conceded that the deal was worth more than Bankers Trust's assets, and said it would make annual goodwill payments of 630 million marks ($370 million) over 15 years.

Market observers say the purchase will help Germany's largest bank fulfill its dream of a sizeable presence in the United States, the world's biggest and most innovative market for capital, but warn that the deal entails considerable risks.

It will also make up for a series of high-level departures in Deutsche's investment banking business this year which culminated in the defection of its entire, more than 100-strong California-based Technology Group to Credit Suisse in July.

"The main challenge for Deutsche will be managing risk because its earnings will become a lot more volatile," said Britta Graf, banking analyst at BNP in Frankfurt, who said the capital increase was in line with her expectation.

"It will also face a dilemma in integrating Bankers Trust: how to keep control of it while at the same time giving it a sufficiently long leash to prevent defections."

Graf, echoing other analysts, said the purchase would not plug holes in Deutsche's mergers and acquisitions, corporate finance and advisory business.

But it will give Deutsche a leading global position in global custody, asset management and private banking for wealthy clients, Graf said.

The emerging markets crisis virtually wiped out Deutsche's operating income in the third quarter, when operating profit slumped to 70 million marks ($41 million), while Bankers Trust slumped to a loss of $488 million.

For Bankers Trust, the acquisition by a partner with deep pockets will boost its custodial and asset management business but its BT Alex Brown securities arm will still not topple industry giants like Merrill Lynch and Co, analysts say.

The merger must obtain the approval of both New York state and U.S. federal banking regulators.