Commerzbank, Dresdner deal possible next week -source

FRANKFURT Mon Aug 25, 2008 6:01pm EDT

FRANKFURT (Reuters) - Agreement on a merger between Germany's Commerzbank (CBKG.DE) and Dresdner Bank could possibly be reached by the end of this month, according to a source familiar with the situation at the bank.

Commerzbank was making arrangements for the possibility of a merger, the person told Reuters on Saturday.

German weekly Welt am Sonntag reported in a preview of a report due to be published on Sunday that an agreement between Commerzbank and insurer Allianz (ALVG.DE) about buying its Dresdner Bank was possible within the coming week.

The paper quoted financial sources as saying that the two companies had agreed on the basic principles of the transaction.

According to the report, Commerzbank would buy Dresdner for slightly more than 9 billion euros ($13.38 billion) and Allianz would vouch for writedowns on the balance sheet of Dresdner of up to 1 billion euros. The sums were still being negotiated.

Allianz would have a stake of slightly less than 30 percent in the merged bank, the report also said.

Commerzbank has been in talks with insurer Allianz about buying its Dresdner Bank since June but there have been few public signs of life in the negotiations in recent weeks.

On Friday, however, a source with direct knowledge of the matter told Reuters Commerzbank planned to call a supervisory board meeting late next week to discuss a merger with Dresdner Bank.

The 21-strong supervisory board is Commerzbank's governing body and its approval is required for large deals such as a merger with Dresdner.

Shareholders hope a sale will end an unhappy marriage. Parent Allianz was once seen as an unshakeable financial powerhouse but is now licking its wounds largely thanks to Dresdner.

The architects of the Dresdner takeover in 2001 had hoped to sell bank accounts to Allianz customers as well as other products such as car insurance over the counter at bank branches.

Instead, Dresdner racked up losses of almost 3 billion euros ($4.5 billion) after the merger as cross-selling floundered.

The sale of Dresdner Bank had been thrown into doubt after its earnings collapsed and writedowns from the markets crisis spiralled.

Despite being Germany's second-biggest lender, Commerzbank is still a lightweight on the international stage with a market value of about 13 billion euros -- less than half that of Frankfurt neighbour Deutsche Bank (DBKGn.DE).

Buying Dresdner, Germany's third-biggest bank, would give Commerzbank a leg up in Europe's biggest economy although it would still lag Deutsche.

Dresdner's retail business, which analysts estimate is alone worth 8 billion euros, is likely to be sold as a packet with its struggling investment bank.

(Reporting by Patricia Uhlig and Alexander Huebner, editing by Mike Peacock)

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