Dresdner will not be just a spectator

For someone signing away 200 years of independence, Simon Robertson, chairman-designate of "Kleinwort Benson, member of the Dresdner Bank group", as the merchant bank will become known, looked mightily pleased with himself yesterday. Kleinwort's management appears, on the surface, to have wrung a remarkably good price from Germany's number two bank. At the same time Kleinwort has preserved a degree of distance from its new Continental owners that others such as SG Warburg can only envy. From independence to autonomy was the way Dresdner and Kleinwort were portraying the near- pounds 1bn deal, emphasising that it is in an altogether different league from the distress sales of other investment banking houses.

The Germans, flexing their muscles by declaring they would write off pounds 500m of goodwill for Kleinwort out of petty cash, were at pains to avoid the impression of a heavy-handed takeover. In today's edgy City, guarantees of management continuity and security of employment mark a significant change. Kleinwort is being told by Dresdner to take the group's investment banking ball and run with it on the international field, with added resources to bolster their joint ambitions.

But to infer that Dresdner will be content with the role of spectator investor would be a grave misreading. This is a significant move for a bank with a cautious tradition. What Dresdner is doing is setting in motion a global investment banking ambition, begining with a powerful European base centred on Kleinwort in the City. Building up in New York and Tokyo will come later. In virtually every field, except that of dealing in American securities in the US itself, Dresdner appears to be bracing itself, with Kleinwort, to take on the behemoths of Wall street.

However alluring the fit of this particular deal may be, it does not alter the fact that Dresdner/Kleinwort will be fighting for elbow room in a pack of equally powerful other hopefuls, as well as some mighty incumbents too. The passage of medium-sized City investment houses into the hands of well-capitalised banks is doing nothing to improve the arithmetics of overcapacity in a tight market. They merely boost the amount of capital chasing a quite limited number of business opportunities. The Continental influx into the investment banking business will turn to a flood, once the Glass-Steagall act, keeping apart commercial banking from the securities business in the US, is breached, as appears likely to happen soon.

Kleinwort and Dresdner appear to have a lot going for them. If the deal comes off, they and Deutsche/Morgan Grenfell will undoubtedly be among the investment banks to watch in the City. But reality dictates that they cannot all succeed. For many, today's bold pronouncements presage tomorrow's tearful reproaches.