Employees and private customers will pay the price for the collapse of Dresdner Bank's planned merger with Deutsche Bank as Dresdner closes a quarter of its branches over the next two years, with the loss of 5,000 jobs.

Dresdner's new chief executive, Mr Bernd Fahrholz, admitted yesterday that the failed merger talks cost the bank almost €1 billion (£0.79 billion), halving its profits for the first quarter of this year.

The bank spent €440 million on "special payments" to persuade top staff at its investment banking subsidiary Kleinwort Benson to stay with the company amid the uncertainty created by the merger talks. The negotiations with Deutsche Bank broke down over Kleinwort Benson, which Deutsche wanted to sell.

Mr Fahrholz told Dresdner's annual general meeting yesterday that the bank had abandoned its plans to expand throughout the world and would concentrate on business in Europe. The new strategy envisages Kleinwort Benson becoming one of Europe's leading investment banks, expanding its activities in France, Italy, Spain and Scandinavia as well as in its core markets of Germany and Britain.

Some 2,900 bank officials will lose their jobs as 300 of Dresdner's 1,150 branches close and a further 2,100 administrative jobs will go, mainly at the bank's headquarters. Its operation at Dublin's International Financial Services Centre will be unaffected, a spokesman said.

Mr Fahrholz insisted Dresdner did not have "Class A and Class B" customers but he made no secret of the bank's intention to focus on advising richer customers how to make their money grow.

A restructuring programme, including massive expansion of the bank's online services, will cost €3.5 billion. Branch closures and redundancy payments are expected to cost €500 million.

Mr Fahrholz denied that, following the botched merger with Deutsche Bank, Dresdner was vulnerable to a hostile takeover by another bank. He said the bank was determined to go it alone - at least for the next two or three years.