April 21 (Bloomberg) -- Dresdner Bank AG’s former capital markets chief is asking a German court to award him 1.5 million euros ($1.9 million) in severance pay after he agreed to leave the unprofitable lender acquired by Commerzbank AG.

Jens-Peter Neumann received a bonus payment of 3 million euros when he left the investment banking unit, Dresdner Kleinwort, after the January takeover by Commerzbank. During a hearing today in Frankfurt, Neumann claimed he was also entitled to a severance payment negotiated before he departed.

Compensation for bankers has become contentious after the financial crisis forced governments to use taxpayer money to prop up lenders. Matthias Woldter, an in-house lawyer for Dresdner, told the Labor Court that Neumann isn’t eligible for the severance payment because his unit contributed 5.7 billion euros of the bank’s record 6.3-billion-euro loss last year.

“This will lead to public outrage,” said Stefan Mueller at F.I.B. Frankfurter Investmentbank AG. “Even if you have a legal right to the payment, each individual needs to ask themselves whether they really deserve it or not after posting such losses.”

Commerzbank has tapped the German government for 18.2 billion euros and said in February it decided to cut bonuses for Dresdner Kleinwort bankers by 90 percent. Some bankers at the unit hired London-based law firm Mishcon de Reya earlier this year as they considered a possible lawsuit to recoup bonuses.

‘Full Swing’

The bank’s losses were incurred “especially at the unit Mr. Neumann headed,” Woldter said. “His duty was to care for its short-, medium- and long-term profitability. He significantly failed in bringing that about.”

Because of the 2008 results, the severance package Neumann negotiated with the bank lost its “material basis” and needed to be adjusted, Woldter said. Dresdner explained this to Neumann in a letter dated Feb. 26 without getting a reply, he said.

Tanja Karhausen, Neumann’s lawyer, said the payments were due independent of the 2008 results.

“When my client and Dresdner negotiated, the work on the 2008 annual report was already in full swing,” Karhausen told the court.

After both parties declined to settle the case, Judge Klaus Koettinger scheduled a hearing for Aug. 6.

Billions of Writedowns

Neumann joined Dresdner Kleinwort in April 2006, after working for UniCredit SpA’s German unit HVB Group, Goldman Sachs Group Inc. and Credit Suisse First Boston. He began his career at Dresdner’s capital markets division in 1984, according to the bank’s Web site. As the head of the capital markets unit, Neumann was in charge of trading products including equity and credit derivatives.

Dresdner Bank booked about 5 billion euros in writedowns and impairments from collateralized debt obligations, asset- backed securities, bond insurers, loans for leveraged buyouts and its structured investment vehicle K2 Corp. in 2008, according to Allianz SE, which sold Dresdner to Commerzbank.

Dresdner Bank granted management board members about 58 million euros in compensation last year even after posting a record loss, according to its annual report. This led Germany’s Bild newspaper to brand the executives “greedy fat cats.”

Neumann’s boss at Dresdner Kleinwort, the unit’s ex-chief Stefan Jentzsch, and former Dresdner Bank Chief Executive Officer Herbert Walter have turned down bonus payments for 2008. Walter told Germany’s Bild am Sonntag newspaper last month that he also plans to forgo a 3.6 million-euro severance payment.

“It’s not justifiable to sue for a bonus or severance pay after such a bad performance,” said Wolfgang Gerke, president of the Bavarian Center of Finance in Munich, before the hearing. “Dresdner Bank executives caused huge losses and deserve a penalty, not a bonus.”

A Dresdner Bank spokesman in Frankfurt said the bank doesn’t comment on proceedings while they are in progress.

The case is: ArbG Frankfurt, 3 Ca 1957/09.

To contact the reporter on this story: Jann Bettinga in Frankfurt at jbettinga@bloomberg.net; Karin Matussek in Frankfurt via the Berlin newsroom at kmatussek@bloomberg.net; Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

Last Updated: April 21, 2009 11:43 EDT