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First place is beginning to feel like home for Smallwood Drive School.

The Amherst school stands at the top of Business First’s rankings of Western New York elementary schools — the same position it occupied last year and in 2005. (It was No. 2 in 2006.)

“I have to credit the staff here. They’re just phenomenal. They work hard, and they have high expectations,” says Lydia Brenner, who became Smallwood’s principal in July 2007.

Consistency is Smallwood’s hallmark. Its fourth graders outperformed regional norms by a 2-1 margin on last year’s statewide tests. They rang up superior rates of 44 percent in math and 18 percent in English, compared to the Western New York averages of 23 percent and 8 percent, respectively.

Brenner gives some of the credit to Smallwood’s “looping” program, which links teachers with the same students for two years, rather than the usual one-year span.

“When you have the same teacher, you don’t have to establish routines and procedures when you start the year in September,” she says. “You’re all set to go, so there’s more time for learning.”

Business First graded 289 elementary schools, using four years of test results from the New York State Education Department. The rankings cover every school that participates in statewide testing for fourth graders.

Full details will be available in Business First’s 2008-09 Guide to Western New York Schools, which hits newsstands on Friday. The top-to-bottom rankings of elementary schools can be found at the end of this story.

Second place belongs to Orchard Park’s South Davis Elementary School, climbing strongly from 10th place a year ago. South Davis has been in this position twice before, ranking second in 2002 and 2003.

Principal Christine Rassow attributes the latest jump, in part, to the school’s targeted remediation program, which identifies students who need extra help in preparing for statewide tests.

“But our focus is not just on the tests,” she says. “The program really helps students improve over the long run. The impact carries over through the whole curriculum.”

Third place goes to Western New York’s top-rated private elementary school, Immaculate Conception School of East Aurora, which moves up from seventh a year ago.

“Our entire teacher staff is so dedicated,” says Susan Gregg, Immaculate Conception’s principal cashadvance. “They’re aware of the students who need extra assistance, and they make sure that help is provided.”

Another key factor, according to Gregg, is Immaculate Conception’s “strong working relationship” with East Aurora’s public school system, which provides access to a special education teacher, a speech pathologist and other services.

This year’s top nine elementary schools are in Erie County. The leading outsider is No. 10 St. John Lutheran School, located in the Niagara-Wheatfield district in Niagara County.

Tiny Southern Tier Catholic School ranks higher than any other elementary school in the six outlying counties beyond Erie and Niagara. The Olean school, which has 95 students from pre-kindergarten through eighth grade, is 15th in the overall standings and first in the Southern Tier.

Principal Dan McCarthy says that Southern Tier Catholic is fighting to maintain its strong academic record in the face of imposing obstacles.

“We face challenges, we certainly do,” he says. “Like so many places, the Olean area is hurting because of unemployment, high gas prices and the cost of living. For people to pay tuition can be a real sacrifice. So our big challenge is to recruit against those demographics.”

Eight elementary schools have improved dramatically this year, climbing at least 50 positions from last year’s rankings. Making the boldest moves are Niagara-Wheatfield’s Holy Ghost Lutheran School, up 103 places from 186th to 83rd, and Springville’s St. Aloysius Regional School, up an even 100 from 163rd to 63rd.

Forty-two schools are recipients of subject awards, given to the top 10 percent of all Western New York elementary schools in English or math. Winners are determined by an analysis of four years of test data in a specific field.

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August was another bad month for the job market. But many economists also are predicting job losses to continue deep into 2009 as well.

The government reported on Friday that there were 84,000 job losses last month, worse than the 75,000 job losses that economists were predicting according to Briefing.com.

U.S. employers have now trimmed 605,000 jobs from the payrolls during the first eight months of the year. For the month of August, economists are predicting that.

The unemployment rate surged to 6.1%, a nearly five-year high and up from 5.7% in July. Economists were expecting the rate to remain at 5.7% in August.

While the monthly job losses so far this year have been modest compared to levels in past recessions, filings for initial jobless claims and continuing jobless benefits have both climbed in the last month to levels typical with a recession.

And beyond the headline numbers, there are a number of segments watched by economists, such as temporary workers, which have also turned lower in recent months.

So even though there have been some hopeful signs for the economy in recent weeks, including declining oil prices and a reading on second quarter economic growth that was stronger than both forecasts and initial estimates, most economists say it’s much too soon to look for a true turnaround in the labor market.

"I think we’ll continue to see {job losses and rising unemployment] unfortunately throughout the rest of the year. It’s not until the first part of next year we’ll see a sustained uptick," said Rich Thompson, vice president of Adecco Group North America, the world’s largest employment services firm.

Thompson said one problem for job seekers is that the professional services sector, which includes accounting, legal and consulting firms among other businesses, are now shedding jobs as well. In the past few years, these businesses were a big engine of employment growth.

In addition, employment is a trailing indicator of economic growth, with job losses and rising unemployment common even after the end of a recession. Employers often make staffing decisions based on recent profitability and sales more than on forecasts for growth.

So even if the latest gross domestic product report — which showed the economy grew at a solid 3.3% annual rate in the second quarter — marks the start of a sustained turnaround, there might not be a pick up in hiring until next year.

But most economists believe that GDP reading is more of a spike driven by short-term issues, such as the arrival of economic stimulus checks, or factors that won’t be maintained, such as a rise in exports fast cash advance loan. The common belief among many experts is that the economy will grow at a sluggish pace at best during the second half of the year.

"I’m not expecting increases in employment until next year because in the second half of this year we’ll see very lethargic economic growth," said Joel Prakken, chairman of Macroeconomic Advisers.

The Conference Board has created a new reading called the Employment Trends Index, which combines a number of different economic readings to predict when employment will turn higher or lower. The index, which typically signals three to six months before job losses will turn to job gains, has yet to show signs of a recovery.

"We think the unemployment rate will keep growing, probably reach between 6 to 6.5% by mid 2009 and only start declining in the second half of next year," said Gad Levanon, senior economist at The Conference Board, before Firday’s job report was released.

But when the economy turns around, many economists believe it’s likely to start adding jobs much faster than it did at the end 2001 and 1991 recessions.

Job losses continued for the better part of 11 months after the end of the recession in March 1991 and for almost two years after the end of the 2001 downturn.

But those recessions followed periods of much stronger job growth than were seen during the expansion that took place for much of this decade.

So economists argue there were not as many "excess" jobs that employers needed to shed during the current slowdown. Thus, there should be more pent-up demand for new hires.

"It’s more likely that once we have a recovery, the unemployment rate will start going down soon thereafter," said Levanon.

The University of Michigan recently published a forecast that calls for a gain of 900,000 jobs during 2009 and 2.6 million jobs during 2010, after a loss of 700,000 jobs this year. If the forecast for 2010 turns out to be right, that would be the biggest increase since 2000. Part of the reason cited for the strong bounce back is the relatively mild job losses so far in this downturn.

"Every recession dating back to 1953 produced considerably more severe job loss than we’ve just experienced," said Saul Hymans, professor emeritus of economics at Michigan. 

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Mortgage-related problems continued to hammer regional banks, according to a report released Wednesday.

Credit rating agency Standard & Poor’s downgraded two regional banks and said it could downgrade eight more in the near future after a review of their respective portfolios. In all, 37% of regional banks could see further downgrades, S&P said.

S&P lowered its credit rating on National City Corp. (NCC, Fortune 500) to A- from A and the rating of First Horizon National Corp. (FHN) to BBB from BBB+.

Lower ratings make it more expensive for banks to borrow money since loans to these institutions are considered to carry a higher risk.

National City’s holdings include a large concentration of mortgage and housing-related investments that could continue to deteriorate over the next few quarters, according to S&P.

The Tennessee-based First Horizon was downgraded on problems related to a decline in the credit market, particularly at its retail banking arm. But the bank’s move to scale back its operations could help it regain its footing, S&P said.

Meanwhile S&P said that Fifth Third Bancorp (FITB, Fortune 500) could face a credit rating downgrade because of its heavy investments in the sour Florida real estate market.

The decline in Florida home values also presents a large risk to the rating of Regions Financial Corp no fax payday loan. (RF, Fortune 500) Last week it acquired $974 million in deposits from Integrity Bank, which failed and was taken over by the Federal Deposit Insurance Corporation.

S&P affirmed its current rating of A+ for Regions, but cautioned that the bank doesn’t have much of a cushion against further losses.

Integrity Bank was the 10th regional bank to fail this year, and there has been growing concern for the health of the regional banking system, as well as the funding available to the FDIC to insure customers’ savings.

The rating agency also warned of potential downgrades at Citizens Republic Bancorp Inc. (CRBC), Comerica Inc. (CMA), Synovus Financial Corp. (SNV), Wilmington Trust Corp. (WL), Zions Bancorp. (ZION), and Colonial BancGroup Inc. (CNB) 

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The number of summer job cut anouncements reached its highest level since 2002, according to a report released Wednesday.

From May through August, employers said they would cut 377,325 jobs, according to employment consultancy Challenger, Gray & Christmas, Inc. That’s nearly 30% more than during the first four months of the year.

The number of job cut announcements usually dips during those particular months as business slows down over the summer, Jim Pedderson, a Challenger spokesman, said.

During the summer of 2002, in the wake of the 2001 recession, companies said they would cut 378,777 positions, according to the report.

Businesses tried to cut jobs this summer as they were hit by "the double whammy of limited access to credit and the high price of oil," said chief executive John Challenger.

Despite the summer climb, plans to reduce labor forces tapered off last month from July as oil prices fell from their highs.

The number of announced job cuts fell to 88,736 in August compared with 103,312 in July, but remained more than 12% higher than the same period last year, the report said.

Planned job cuts in the financial sector, which has been suffering from mortgage and credit market losses, also declined.

The number of announced layoffs in the financial sector fell to their lowest level since July 2007, totaling 2,182, down from 14,396 job cuts averaged over the previous seven months, according to the report.

"It might suggest that [credit] conditions are beginning to relent," John Challenger noted http://payday-z.com. But don’t look for significant relief anytime soon, he said.

"It is too early to say that the decline in financial job cuts last month marks the start of a turnaround for the industry," he remarked in a press release. "Many firms are still experiencing major losses in earnings and could make more workforce reductions as 2008 comes to a close." 

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The dominant U.S. service sector improved last month and businesses boosted productivity in the second quarter but the labor market continues to struggle, government reports on Thursday showed.

The Labor Department said business productivity surged at a revised 4.3 percent annual rate, nearly double the 2.2 percent gain previously reported and well ahead of forecasts for a 3.5 percent increase.

“We’re not in an ugly environment but we’re not in a great environment either,” said Kurt Brunner, portfolio manager at Swarthmore Group in Philadelphia.

Companies have cut payrolls in each of the first seven months this year and an intently awaited report on Friday is expected to show that they did so again in August.

A separate report from the Labor Department confirmed a steadily weakening labor market as the number of U.S. workers filing new claims for jobless benefits jumped by 15,000 last week to a seasonally adjusted 444,000.

That was much higher than the 425,000 claims that analysts surveyed by Reuters had anticipated and sent major U.S payday advance online. stock indexes down 2 percent. But prices for U.S. Treasury debt extended gains as investors bet the Federal Reserve would keep interest rates low.

Another report from ADP Employer Services on Thursday showed private employers cut 33,000 jobs in August, which some analysts said increased chances that Friday’s payroll report from the Labor Department will be weak.

The Institute for Supply Management said its non-manufacturing index rose to 50.6 for August from July’s 49.5. A reading above 50 signals expansion. The ISM report showed inflation pressures in the service sector moderated but the jobs picture also deteriorated. 

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Hurricane Gustav hit the U.S. Gulf Coast on Monday with far less force than Hurricane Katrina did three years ago, but its economic bite could be worse as it hits a national economy that is far weaker than the one battered by Katrina in 2005.

Economists agree that in the long run, a major hurricane or other natural disaster can actually help lift economic activity because of insurance payments and federal assistance.

In the short-term, the destruction and the disruptions can be a hit to the economy.

EQECAT, a firm that estimates losses for the insurance industry, said Gustav could end up causing between $6 billion and $10 billion in insured losses. That amount is a fraction of the $41 billion in insured losses caused by Katrina three years ago, but still enough to make it among the ten most costly storms in U.S. history.

But even with lower loss estimates, the weakened state of the U.S. economy - suffering a housing downturn, credit crunch and job sector woes - is one of the biggest concerns of economists trying to assess the impact that Gustav will have.

"Even if it causes $10 billion in damage, that is not a huge deal for the overall economy. But it’s coming on top of everything else going wrong," said David Wyss, chief economist for Standard & Poor’s. "It makes it more likely the recession scenario for the end of the year."

Rich Yamarone, director of economic research at Argus Research, said one of the reasons limiting Katrina’s economic impact was the strength of the economy at that time. "That showed how incredibly resilient and flexible the economy was in 2005," he said.

Yamarone said he’s concerned that Gustav comes at a worse time.

"It’s another blow to an economy that can’t afford to take these punches," he said. "It could push us a lot closer to a recession."

One of the greatest shocks for the overall U.S. economy could come from another spike in energy prices.

Futures prices for crude oil, gasoline and natural gas fell Monday as traders bet that damage would not be as bad as expected. But some experts said it is too soon to predict there won’t be a rise in those key energy prices. They point out that energy prices didn’t start to climb until days after Katrina hit in 2005.

"We probably won’t know until Thursday the full assessment of what the damage will be," said Kenneth Medlock, energy fellow at Rice University.

Given the course of the storm, Medlock is more worried about natural gas prices rather than oil and gasoline payday loan. About 10% of the natural gas that Americans consume is produced off the U.S. Gulf Coast. By contrast, only 5% of the crude oil use in the United States is produced in the Gulf region.

"It crossed right through that (natural gas) territory," Medlock said. "If there was any damage to that particular infrastructure, it could affect natural gas production for some time."

Natural gas is the leading fuel used for winter heating, and accounts for about 20% of the nation’s electric generation.

Medlock said damage to the natural gas supplies could cause natural gas prices to spike 10 to 20%. He said those hoping for an economic recovery were counting on gasoline and natural gas prices not turning higher after their recent retreat.

"If there’s any sustained damage, all of that gets turned on its head," he said. "That would certainly hamper any sort of recovery."

But some economists believe that without any damage to the energy sector, the U.S. economy should be able to ride out any damage from Gustav.

"It’s a big personal disaster story, a big regional disaster story. But it shouldn’t be big for the economy unless it hits the energy sector hard," said Bob Brusca of FAO Economics.

Another concern for many economists is that exports have been they key area of strength in a U.S. economy hit by a housing downturn, a credit crunch and declining corporate profits. And many of those exports, especially agricultural exports, could be severely disrupted by the storm.

Wyss points out the main gateway for the nation’s exports are the five deepwater ports on the Mississippi River in and near New Orleans, and that it can take time for those facilities to resume normal operation after a major storm. While the Port of New Orleans resumed some operations less than two weeks after Katrina, it was still operating at only at 80% of pre-storm capacity six months later.

Wyss also said he’s worried that insurers and re-insurance companies could be forced to sell assets to pay out claims - and put additional stress on the already-battered financial sector.

"It is not going to kill them compared to the $500 billion writeoffs they’ve taken on subprime, but it is more losses," he said. 

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A measure of U.S. manufacturing was little changed in August as gains in exports helped offset falling domestic demand.

The Institute for Supply Management's factory index slipped to 49.9 from 50.0, the dividing line between expansion and contraction, in July. A Commerce Department report showed construction spending fell more than forecast in July, with residential building reaching its lowest level in seven years.

The boost from exports, which have kept the economy afloat amid the housing slump and fading impact of federal tax rebates, may recede as economies in Europe and Japan verge on recessions. Stephen Roach, Morgan Stanley's Asia chairman, said today that the global economic downturn has only just begun.

“Demand is weak and will continue to weaken,'' said Kevin Logan, a senior market economist at Dresdner Kleinwort in New York, who forecast the ISM index would drop to 49.8. “It's not a deep recession but a recession nonetheless.''

Stocks reversed early gains, while Treasuries rallied. The Standard & Poor's 500 Stock Index declined 0.4 percent to close at 1,277.58 in New York. Benchmark 10-year notes yielded 3.73 percent, compared with 3.82 percent at the close last week.

The ISM index was projected to remain unchanged at 50, according to the median of 72 economists' forecasts in a Bloomberg News survey.

`Rather Flat'

“Manufacturing has been rather flat,'' said Norbert Ore, chairman of the ISM survey, in a conference call from Atlanta. “The industries that are doing well are not that strong, and the ones that are declining aren't declining that much.''

The purchasing managers' gauge of new orders for factories increased to 48.3 from 45 the prior month, when it reached its lowest level since October 2001. The production measure dropped to 52.1 from 52.9.

Orders from overseas have helped some companies withstand slower U.S. sales. The group's export gauge jumped to 57 from 54 the prior month. With the euro-region and Japanese economies contracting last quarter, and the dollar rallying since mid- July, that may change.

“We're in the early stages of the downturn in the U.S. and global business cycle,'' Roach said in an interview with Bloomberg Television in New York today.

The employment index dropped to 49.7 from 51.9 in July, a further sign of weakness in factory employment. Ford Motor Co., the second-largest U.S paydayloan. automaker, last month said it would lay off 300 workers at a Michigan engine factory as demand dwindles for vehicles equipped with V-8 engines because of gasoline prices.

Price Gauge

The purchasing managers' index of prices paid dropped to 77 from 88.5.

The Commerce Department said construction declined 0.6 percent in July after a revised 0.3 percent gain that initially was reported as a 0.4 percent drop. Private residential projects declined 2.3 percent in July to the lowest level since March 2001, the start of the country's last official recession.

President George W. Bush has credited the $168 billion fiscal stimulus enacted in February with helping the U.S. to ward off a recession. Even as economists project the economic downturn will worsen by year-end, he said Aug. 30 in his weekly radio address that conditions are “beginning to improve.''

By contrast, about three out of four Americans say the economy is in bad shape, a Bloomberg/Los Angeles Times poll showed last month. In June, that proportion reached 82 percent, the worst assessment in 15 years.

Growth Projections

The economy will grow at an average 0.7 percent pace in the second half of the year, economists surveyed by Bloomberg News forecast in the first week of August. Last week, the government reported the economy grew at a better-than-forecast 3.3 percent annual rate in the second quarter, following 0.9 percent in the first three months of the year.

The smallest trade deficit in eight years was the biggest contributor to growth last quarter. The smaller gap added 3.1 percentage points to growth, the most since 1980. That is likely to diminish as overseas economies slow and the dollar strengthens.

A slump in the auto industry has been at the forefront of the weakening in domestic manufacturing. Sales of cars and light trucks in July slid to a 12.5 million annual rate, the lowest level since 1993, according to industry figures.

General Motors Corp. Chief Executive Officer Rick Wagoner said Aug. 16 he's not yet seeing signs of a recovery in the U.S. economy or in vehicle sales.

The sluggish economy helped push GM, the world's largest automaker, to a $15.5 billion loss in the second quarter. “It still feels to me like we're in it,'' Wagoner said of the economic slowdown.

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CPS Energy dispatched a storm recovery team to Lafayette, La. this morning to help restore power for residents living in Southwestern Louisiana whose electric service was knocked out by Hurricane Gustav.

The utility is sending out Mike White, David Miller, Tim Dennis and Glen Mueller to lead to the restoration mission. All have experience working on other storm-related disasters.

“We’ll be assisting the Lafayette Utilities System (LUS), a municipally owned utility similar to CPS Energy,” says Ron Schaefer, the company’s vice president of new service delivery. “LUS serves about 60,000 electric customers in and around Lafayette, a city of approximately 112,000 in Southwestern Louisiana.”

Utility linemen will repair downed power lines and damaged transformers 500 fast cash. Pole crews will replace fallen utility poles and support personnel will help with transportation and communications.

Louisiana Gov. Bobby Jindal told reporters Tuesday that some 300,000 people throughout the state are currently without power.

CPS Energy is developing a proficiency in helping out storm-related disasters. In July, a 34-member crew helped restore power in Brownsville following Hurricane Dolly. In 2005, local workers helped restore power in Texas and Louisiana in the wake of hurricanes Katrina and Rita.

CPS Energy is San Antonio’s municipally owned utility. The company serves 685,000 electric customers and nearly 320,000 natural gas customers.

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Australia's central bank cut its benchmark interest rate for the first time in seven years amid signs the nation's $1 trillion economy is slowing.

Governor Glenn Stevens and his board reduced the overnight cash rate target by a quarter point to 7 percent in Sydney today, as forecast by 22 of 23 economists surveyed by Bloomberg News.

The biggest slump in retail sales in six years, tumbling business confidence and slower jobs growth means “there was now scope for monetary policy to become less restrictive,'' Stevens said today. Gross domestic product expanded by the least in two years in the second quarter, economists surveyed ahead of a Sept. 3 report forecast.

“The economy is slowing, and probably faster than the Reserve Bank expected,'' said Su-Lin Ong, senior economist at RBC Capital Markets Ltd. in Sydney.

“A further easing will be very conditional on an ongoing moderation in demand.''

The Australian dollar rose to 85.09 U.S. cents at 2:35 p.m. in Sydney from 84.87 cents just before the decision was announced. The two-year government bond yield was little changed at 5.68 percent.

The benchmark S&P/ASX 200 Index rose 0.6 percent to 5,149.4 on speculation lower rates will buoy lending at the nation's banks. National Australia Bank Ltd., the No. 1 lender by assets, added 1.6 percent to A$25.04. Commonwealth Bank of Australia, the biggest home lender, rose 1.4 percent to A$43.18.

Inflation Target

“Weighing up the available domestic and international information, the board judged that there was now scope for monetary policy to become less restrictive,'' Stevens said in a statement on the bank's Web site.

Policy makers will “continue to assess prospects for demand and inflation over the period ahead, and set monetary policy as needed to bring inflation back to the 2 percent to 3 percent target over time,'' Stevens added.

Australia's four largest banks, Commonwealth Bank, Westpac Banking Corp., Australia & New Zealand Banking Group and National Australia, said they will pass all of today's quarter- point cut to mortgage holders.

Policy makers last raised borrowing costs in March, for a second straight month, to curb consumer prices that jumped 4.5 percent in the second quarter.

The bank has added 300 basis points to the benchmark rate since December 2001, when it was 4.25 percent.

Economic Growth

Since the bank's last meeting on Aug. 5, reports have shown new home sales fell to a two-year low and lending to consumers and businesses rose at the slowest annual pace since 2002 payday loans. Companies including Qantas Airways Ltd., Ford Motor Co. and Starbucks Corp. have announced job cuts.

The government will publish a report tomorrow at 11:30 a.m. in Sydney showing second-quarter gross domestic product rose 0.4 percent from the previous three months, when it expanded 0.6 percent, according to the median estimate of 23 economists surveyed by Bloomberg.

Today's cut is welcome and will provide “relief'' to borrowers, Prime Minister Kevin Rudd told parliament after the decision.

The reduction is “welcome but not a day for celebration,'' with “more tough times ahead'' for the economy, he said.

Stevens, along with his counterparts in Europe, Asia and the U.S., faces the challenge of balancing slowing household spending, which accounts for about 60 percent of Australia's economy, with the threat that inflation will accelerate amid rising energy costs and a shortage of skilled labor.

Exports to China

“The scarcity of labor in Australia is now acute'' and it will “have a negative impact on BHP Billiton Ltd.,'' Don Argus, chairman of the world's biggest mining company, said at a business forum in Canberra yesterday.

Surging demand from China will increase Australia's export income by 20 percent this year, the central bank estimates, offsetting slower domestic growth and boosting profits at miners including BHP Billiton. A report yesterday showed company profits surged in the second quarter by the most in more than seven years.

“The Reserve Bank will be concerned by the extent to which profit growth and business investment intentions have grown amidst a seemingly deteriorating economic environment,'' Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney, said ahead of today's announcement. “It rules out three rate cuts this year.''

Housing Affordability

The nation's five largest lenders, including Commonwealth Bank, have added an average 105 basis points to mortgage rates in 2008 as the global credit squeeze drove up funding costs. The central bank has raised its benchmark by a total of 50 basis points in that time.

Today's cut will reduce repayment on an average A$250,000 ($213,000) home loan by A$42 a month.

A report yesterday showed households spent 39.8 percent of their incomes on mortgage payments in the June quarter, the most in the 22 years the institute has measured affordability.

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Commerzbank (CBKG.DE: Quote, Profile, Research, Stock Buzz) agreed to buy Dresdner Bank from Allianz (ALVG.DE: Quote, Profile, Research, Stock Buzz) on Sunday in a $14.5 billion all-German deal that will break the country’s banking mould and cost 9,000 jobs.

Commerzbank (CBKG.DE: Quote, Profile, Research, Stock Buzz) will buy its competitor in two steps, taking 60 percent this year and the rest in 2009 to create a rival to sector leader Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz) in Europe’s biggest economy.

Much of the purchase price will be paid to Allianz in the form of shares, leaving Europe’s biggest insurer with a stake of almost 30 percent in the new Commerzbank.

The new owner plans to close more than a third of the combined group’s 1,900 branches and pare back laggard investment bank Dresdner Kleinwort, which has been further hobbled by the credit crunch.

The deal puts a price tag of 9.8 billion euros on Dresdner fast payday loans. Allianz paid 24 billion for it in 2001.

A further strand to the deal sees Allianz buying Commerzbank’s fund management business Cominvest.

Analysts and insiders were skeptical over whether the pairing of what many see as two mediocre performers could create a financial champion.

“It is good for Allianz. In the seven years they have owned Dresdner they have learned that they don’t have a clue about running a bank,” said Dirk Becker, an analyst with Landsbanki Kepler. 

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